<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 September 30, 2000
---------------------------------
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.
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(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
Delaware 36-3658792
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
</TABLE>
14950 Martin Drive, Eden Prairie, Minnesota 55344
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(Address of Principal Executive Offices)(Zip Code)
(952) 937-3000
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(Registrant'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 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 November 9, 2000, the Registrant had 6,125,994 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 September 30, 2000 and December 31, 1999...............................1
Statements of Income and Comprehensive Income (Loss) for the three
and nine months ended September 30, 2000 and 1999...........................................2
Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999.................................................................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 6. Exhibits and Reports on Form 8-K.....................................................................12
Signatures....................................................................................................13
</TABLE>
(i)
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
STRATASYS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
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SEPTEMBER 30, DECEMBER 31,
2000 1999
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,928,218 $ 2,532,359
Marketable securities 5,975,460 6,000,620
Accounts receivable, less allowance for returns and
doubtful accounts of $488,169 in 2000 and $420,833 in 1999 9,739,140 11,756,257
Inventories 9,226,773 6,647,265
Prepaid expenses 515,262 429,211
Deferred income taxes 214,000 214,000
------------------------------------------------------
Total current assets 27,598,853 27,579,712
------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 3,138,592 3,235,362
------------------------------------------------------
OTHER ASSETS
Intangible assets, net 3,577,777 3,409,708
Deferred income taxes 2,507,000 2,507,000
Other 251,999 381,534
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6,336,776 6,298,242
------------------------------------------------------
$ 37,074,221 $ 37,113,316
======================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Obligations under capitalized leases, current portion $ 208,774 $ 230,229
Accounts payable and other current liabilities 3,170,510 3,855,447
Unearned maintenance revenue 4,053,650 3,926,583
Income taxes payable 361,408
------------------------------------------------------
Total current liabilities 7,794,342 8,012,259
------------------------------------------------------
OBLIGATIONS UNDER CAPITALIZED LEASES, less current portion 161,593 318,012
------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, authorized 15,000,000
shares, issued 6,125,994 shares
in 2000 and 6,101,961 shares in 1999 61,260 61,020
Capital in excess of par value 32,896,593 32,712,755
Accumulated deficit (829,741) (1,703,880)
Accumulated other comprehensive loss (31,449) (39,608)
Less cost of treasury stock, 652,000 shares in 2000
and 542,600 shares in 1999 (2,978,377) (2,247,242)
------------------------------------------------------
Total Stockholders' Equity 29,118,286 28,783,045
------------------------------------------------------
$ 37,074,221 $ 37,113,316
------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE> 4
STRATASYS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
(UNAUDITED) (UNAUDITED)
------------------------------------------------------------------------------------------------
<S> <C> <C>
SALES $ 9,001,518 $ 10,359,357
COST OF GOODS SOLD 3,579,948 3,311,250
----------------------------------------------
GROSS PROFIT 5,421,570 7,048,107
COSTS AND EXPENSES
Research and development 1,570,992 1,829,828
Selling, general and administrative 3,710,911 3,826,847
----------------------------------------------
5,281,903 5,656,675
----------------------------------------------
OPERATING INCOME 139,667 1,391,432
----------------------------------------------
OTHER INCOME
Interest income 129,496 125,409
Interest expense (24,192) (32,862)
----------------------------------------------
105,304 92,547
----------------------------------------------
INCOME BEFORE INCOME TAXES 244,971 1,483,979
INCOME TAXES 73,490 519,392
----------------------------------------------
NET INCOME $ 171,481 $ 964,587
----------------------------------------------
EARNINGS PER COMMON SHARE
Basic $ 0.03 $ 0.17
==============================================
Diluted $ 0.03 $ 0.17
==============================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic 5,538,940 5,658,739
==============================================
Diluted 5,691,920 5,660,680
==============================================
COMPREHENSIVE INCOME
NET INCOME $ 171,481 $ 964,587
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment (3,202) 3,275
----------------------------------------------
COMPREHENSIVE INCOME $ 168,279 $ 967,862
==============================================
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
(UNAUDITED) (UNAUDITED)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
SALES $ 27,322,772 $ 26,826,896
COST OF GOODS SOLD 10,043,871 8,953,954
-----------------------------------------
GROSS PROFIT 17,278,901 17,872,942
COSTS AND EXPENSES
Research and development 4,848,811 5,101,771
Selling, general and administrative 11,526,968 11,558,743
-----------------------------------------
16,375,779 16,660,514
-----------------------------------------
OPERATING INCOME 903,122 1,212,428
-----------------------------------------
OTHER INCOME
Interest income 402,902 380,941
Interest expense (57,255) (78,750)
-----------------------------------------
345,647 302,191
-----------------------------------------
INCOME BEFORE INCOME TAXES 1,248,769 1,514,619
INCOME TAXES 374,630 530,117
-----------------------------------------
NET INCOME $ 874,139 $ 984,502
-----------------------------------------
EARNINGS PER COMMON SHARE
Basic $ 0.16 $ 0.17
=========================================
Diluted $ 0.15 $ 0.17
=========================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic 5,544,985 5,847,083
=========================================
Diluted 5,777,347 5,849,609
=========================================
COMPREHENSIVE INCOME
NET INCOME $ 874,139 $ 984,502
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment 8,159 8,384
=========================================
COMPREHENSIVE INCOME $ 882,298 $ 992,886
=========================================
</TABLE>
<PAGE> 5
STRATASYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
(UNAUDITED) (UNAUDITED)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 874,139 $ 984,502
Adjustments to reconcile net income to net
cash used in operating activities:
Deferred taxes 530,117
Depreciation 949,310 942,049
Amortization 323,475 526,927
Increase (decrease) in cash attributable to
changes in assets and liabilities
Accounts receivable 2,017,117 (613,071)
Inventories (2,579,508) (1,093,431)
Prepaid expenses (86,051) (105,096)
Other assets 129,535
Accounts payable and other current liabilities (684,937) 354,372
Unearned maintenance revenue 127,067 928,142
Income taxes payable 361,408
------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,431,555 2,454,511
------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities, net 25,160 4,573,758
Acquisition of machinery and equipment (852,540) (804,759)
Payments for intangible assets (491,544) (869,681)
Proceeds from other assets, net 49,378
Purchased in-process research and development (6,464,709)
------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,318,924) (3,516,013)
------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of obligations under capitalized leases (177,874) (145,308)
Net proceeds from the sale of common stock 184,078 2,286
Repurchase of treasury stock (731,135) (1,474,907)
------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (724,931) (1,617,929)
------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 8,159 8,384
------------------------------------------------------
NET DECREASE IN CASH (604,141) (2,671,047)
CASH AND CASH EQUIVALENTS, beginning of period 2,532,359 11,243,839
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CASH AND CASH EQUIVALENTS, end of period $ 1,928,218 $ 8,572,792
======================================================
</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 nine months
ended September 30, 2000, 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, 1999, filed as part of the Company's Annual Report on
Form 10-K for such year.
Note 2--- Inventory
Inventories consist of the following at September 30 and December 31,
respectively:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Finished goods $ 4,662,666 $ 3,715,292
Work in process 238,248 50,103
Raw materials 4,325,859 2,881,870
-------------- --------------
Totals $ 9,226,773 $ 6,647,265
============== ==============
</TABLE>
Note 3--Material Commitments
The Company has signed material commitments with several vendors for fixed
delivery of selected inventory expected to be supplied in the ensuing
twelve-month period. These commitments amount to approximately $3,000,000, some
of which contain non-cancellation clauses.
Note 4--Income per common share
The difference between the number of shares used to compute basic income
per share and diluted income per share relates to additional shares to be
issued upon the assumed exercise of stock options and warrants, net of shares
hypothetically repurchased at the average market price with the proceeds of
exercise. For the nine months ended September 30, 2000 and 1999, these
amounted to 232,362 and 2,526, respectively. For the three months ended
September 30, 2000 and 1999, these amounted to 152,980 and 1,941,
respectively.
4
<PAGE> 7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
We develop, manufacture, and market 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, our 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 us. Our current and
future growth is largely dependent upon our ability to penetrate new markets
and develop and market new rapid prototyping devices and applications that
meet the needs of our current and prospective customers. Our new product
development will focus on various rapid prototyping systems, modeling
materials, and software enhancements. Our primary business strategy will focus
on expanding international and domestic sales of our existing family of rapid
prototyping systems, while maintaining on-going development of new rapid
prototyping equipment, modeling materials, and software.
In July 2000, we introduced Prodigy(TM), a low cost rapid prototyping
system that produces ABS parts for functional testing of prototype designs.
Prodigy offers office modeling, speed, ease of use, and networking
capabilities at a competitive price. It is based on technology we purchased in
December 1998 and further developed throughout 1999 and the first half of
2000. We began commercial shipment in July 2000.
Net revenue derived from sales of our rapid prototyping devices, modeling
materials, and maintenance has increased each year since 1990. We expect, but
cannot assure, that this trend will continue. We believe that we shipped more
rapid prototyping systems than any of our competitors in the three-year period
ended December 31, 1999, and that we recorded the second highest revenues
within the industry in 1999. Our revenue for the nine months ended September
30, 2000, increased by approximately 1.8% over the revenue recorded in the
same 1999 period. We can give no assurances, however, that these trends will
continue.
Our expenditures for research and development ("R&D") for both new
products and sustaining engineering continue to be significant. R&D expenses
amounted to $1,570,992 in the third quarter of 2000 compared with $1,829,828
recorded in the comparable 1999 period. R&D expenses are expected to expand
moderately in the fourth quarter from the levels attained in the third quarter
of 2000, although we can give no assurances that R&D expenses will not
increase more significantly due to project cost over-runs or delays. Selling,
General and Administrative ("SG&A") expenses declined slightly to $3,710,911
in the third quarter of 2000 as compared with $3,826,847 in the same 1999
period, although we expect that SG&A expenses will trend higher on increasing
revenue throughout the remainder of 2000. Our headcount has increased to
approximately 209 employees and contractors at the end of the third quarter of
2000 from approximately 196 employees and contractors at the end of the
comparable 1999 period. Future profitability will be dependent upon our
ability to control our operating expenses, including our headcount additions,
while increasing revenues. We do not believe that meaningful improvements to
our gross margins are achievable, and gross margins could possibly decline in
the event that significant price competition emerges within the industry or if
our product mix were to change dramatically.
We believe that the rapid prototyping industry is growing at
approximately 15-20% per year, and that 3D printers and office modelers
account for more than 30% of the total units of rapid prototyping systems
shipped. We believe that there is a long-term 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 pricing sensitivity. These segments are more interested in
modeling envelope size, modeling materials, throughput, part quality, part
durability, and rapid tooling, 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, 2000 COMPARED WITH THE QUARTER ENDED SEPTEMBER 30,
1999
The following table contains selected statement of operations data as a
percentage of net sales for the periods indicated. All items are included in
or derived from our statement of income.
<TABLE>
<CAPTION>
For the quarters ended September 30,
2000 1999
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 39.8% 32.0%
Gross margin 60.2% 68.0%
Selling, general, and administrative expenses 41.2% 36.9%
Research and development expense 17.5% 17.7%
Operating income 1.6% 13.4%
Other income (net) 1.2% 0.9%
Income before taxes 2.7% 14.3%
Income taxes 0.8% 5.0%
Net income 1.9% 9.3%
</TABLE>
NET SALES
Net sales for the quarter ended September 30, 2000 were $9,001,518,
compared with net sales of $10,359,357 for the quarter ended September 30,
1999. This represents a decrease of $1,357,839, or 13.1%. Revenues derived
from sales of Prodigy and Benchtop systems, especially the FDM(TM) 3000 with
WaterWorks, were strong. Consumable and maintenance revenue also increased in
the quarter ended September 30, 2000 as compared with the same 1999 period.
Maintenance and materials revenues were enhanced by the larger installed base
of systems, customer satisfaction with ABS, WaterWorks and other material
selections, and continued emphasis on the sale of maintenance contracts.
We shipped 81 units in the third quarter of 2000 as compared with 80
units in the same 1999 period. System sales included sales of all systems,
including trade-in and upgrade systems. The average selling price of our
systems also declined in the current quarter as compared with the same 1999
period, influenced by product mix and the introduction of the Prodigy. Product
mix can dramatically affect the average selling price in any quarter,
Domestic sales accounted for approximately 53% of total revenue in the
quarter ended September 30, 2000, which was down from the 55% recorded in the
comparable period in 1999. In the United States, the central region was
particularly strong. Europe accounted for approximately 20% of total revenue
in the third quarter of 2000 as compared to approximately 19% in the
comparable period of 1999. We expected sales into Europe in the second half of
2000 to improve to compensate for the weak levels attained in the first half,
but they are still below our expectations. Our combined Asia-Pacific region,
which comprises the Far East, Southeast Asia, and India, accounted for
approximately 22% of total revenue in the third quarter of 2000. While this
region was down from 26% attained in 1999, the results met our internal
expectations. Historically, we have derived a larger percentage of our revenues
from our European region, and have introduced some steps to improve our
performance in this region, especially as it relates to the weak Euro. We
believe that 2000 sales into Southeast Asian countries such as Singapore,
Thailand, Indonesia, and Malaysia will be weak, but sales into the remainder of
the Asia Pacific region are expected to remain strong in 2000. No assurances,
however, can be given that future sales and profitability will not be adversely
impacted by the economic conditions of our international regions.
6
<PAGE> 9
GROSS PROFIT
Gross profit declined to $5,421,570, or 60.2% of sales, in the quarter
ended September 30, 2000, compared with $7,048,107, or 68% of sales, in the
quarter ended September 30, 1999. This represents a decrease of $1,626,537, or
23.1%. The decline in gross profit in the 2000 period was due to lower sales
volume, shifts in the Company's product mix, and an inventory obsolesce
write-off of approximately $200,000. Historically, gross profit has fluctuated
between 63% and 67% of revenues due primarily to product mix shifts. These
product mix shifts are difficult to forecast and can be expected to impact our
gross profit in future quarters.
OPERATING EXPENSES
SG&A expenses declined to $3,710,911 for the quarter ended September 30,
2000, from $3,826,847 for the quarter ended September 30, 1999. This
represents a decrease of $115,936, or 3.0%. We have increased our customer
support department to service the expanded customer base under service
contracts. Warranty expense, on the other hand, declined significantly as
compared with the quarter ended September 30, 1999. SG&A expenses can be
expected to increase somewhat in future quarters due to the variable component
of selling expense as well as anticipated increases to the customer support
area, but we expect, but cannot assure, that our revenue growth rate will
exceed the growth rate of our SG&A expenses.
R&D expenses declined to $1,570,992 for the quarter ended September 30,
2000 from $1,829,828 for the quarter ended September 30, 1999. The decline in
2000 over 1999 amounted to $258,836, or 14.1%. While payroll expenses were
higher in the quarter ended September 30, 2000 compared with the same 1999
period, we reduced expenses for materials and professional services. The
timing of certain material and project deliveries can impact expenses and is
difficult to forecast. We believe that R&D expenses will increase from the
levels recorded in the third quarter of 2000 as we proceed with our new
product development efforts. However, we believe, but cannot assure, that
these increases will be less than our revenue growth rate. In the third
quarter of 2000 we reduced and consolidated our R&D management. Expense
savings from these actions will not be fully realized until later in the
fourth quarter of 2000.
Our operating income for the quarter ended September 30, 2000 amounted to
$139,667, or 1.6% of sales, compared with operating income of $1,391,432, or
13.4% of sales, for the quarter ended September 30, 1999.
OTHER INCOME
Other income and expense netted to $105,304 in the quarter ended
September 30, 2000 compared with $92,547 in the same 1999 period. Interest
income amounted to $129,496 compared with interest income of $125,409 recorded
in 1999.
NET INCOME
For the reasons cited above, net income for the quarter ended September
30, 2000 declined to $171,481 compared with net income of $964,587 in the same
1999 period. This resulted in earnings per diluted common and common
equivalent share of $.03, compared with $.17 in the period ended September 30,
1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
The following table contains selected statement of operations data as a
percentage of net sales for the periods indicated. All items are included in
or derived from our statements of income.
7
<PAGE> 10
<TABLE>
<CAPTION>
For the nine months ended September 30,
2000 1999
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 36.8% 33.4%
Gross margin 63.2% 66.6%
Selling, general, and administrative expenses 42.2% 43.1%
Research and development expense 17.7% 19.0%
Operating income 3.3% 4.5%
Other income (net) 1.3% 1.1%
Income before taxes 4.6% 5.6%
Income taxes 1.4% 2.0%
Net income 3.2% 3.7%
</TABLE>
NET SALES
Net sales for the nine months ended September 30, 2000 were $27,322,772,
compared with net sales of $26,826,896 for the nine months ended September 30,
1999. This represents an increase of $495,876, or 1.8%. Our Benchtop systems,
especially the FDM 3000 with WaterWorks, and Quantum(TM) constituted the
largest component of our product mix. Consumable and maintenance revenue also
increased in the nine months ended September 30, 2000 as compared with the
same 1999 period. Maintenance and materials revenues were enhanced by the
larger installed base of systems, customer satisfaction with ABS, WaterWorks
and other material selections, and continued emphasis on the sale of
maintenance contracts.
Net unit shipments increased by approximately 11% in the nine months
ended September 30, 2000 as compared with 1999. System sales included sales of
all systems, including trade-in and upgrade systems. However, the average
selling price of our systems also declined in the nine-month period ended
September 30, 2000 as compared with the same 1999 period. Strong unit growth
of our Benchtop and Prodigy products had a significant impact on the average
selling price in the current nine-month period. Our product mix can
dramatically affect the average selling price in any period, and we expect,
but cannot assure, that the average selling price will increase in the next
several quarters as the product mix shifts to higher priced systems.
Domestic sales accounted for approximately 58% of total revenue in the
nine months ended September 30, 2000, which was significantly above the 51%
recorded in the comparable period in 1999. In the United States, the central
region was particularly strong. Europe accounted for approximately 17% of
total revenue in the nine months ended September 30, 2000 as compared to
approximately 18% in the same period of 1999. Our combined Asia-Pacific
region, which comprises the Far East, Southeast Asia, and India, accounted for
almost 21% of total revenue in the nine months ended September 30, 2000. This
region was down from approximately 25% attained in 1999, but the results met
our expectations for the nine-month period.
GROSS PROFIT
Gross profit declined to $17,278,901, or 63.2% of sales, in the nine
months ended September 30, 2000, compared with $17,872,942, or 66.6% of sales,
in the quarter ended September 30, 1999. This represents a decrease of
$594,041, or 3.3%. Gross profit was negatively impacted in the 2000 period by
product mix shifts to lower margin products coupled with higher overhead
expense.
8
<PAGE> 11
OPERATING EXPENSES
SG&A expenses declined to $11,526,968 for the nine months ended September
30, 2000, from $11,558,743 for the same period of 1999. This represents a
decrease of $31,775, or .3%. As a percentage of sales, SG&A expenses amounted
to 42.2% of sales in the nine months ended September 30, 2000, as compared to
43.1% in the comparable 1999 period. We have increased our customer support
department to service the expanded customer base under service contracts, and
also strengthened our international sales operation. Warranty expense declined
significantly as compared with the nine months ended September 30, 1999. SG&A
expenses can be expected to increase in the fourth quarter of the year due to
the variable component of selling expense as well as anticipated increases to
the customer support area. However, we expect, but cannot assure, that our
SG&A growth will be less than the growth rate of our revenues.
R&D expenses declined to $4,848,811 for the nine months ended September
30, 2000 from $5,101,771 for the same period of 1999. The decrease in 2000
from 1999 amounted to $252,960, or 5.0%. While payroll expenses were
significantly higher in the nine months ended September 30, 2000 compared with
the same 1999 period, we reduced expenses for professional services and
materials. The timing of certain material and project deliveries can impact
when expenses are recognized. We believe that R&D expenses will increase from
the levels recorded in the third quarter of 2000 as we proceed with our new
product development efforts. However, we believe, but cannot assure, that
these increases will be less than our revenue growth rate.
Our operating income for the nine months ended September 30, 2000
amounted to $903,122, or 3.3% of sales, compared with $1,212,428, or 4.5% of
sales, for the nine months ended September 30, 1999.
OTHER INCOME
Other income and expense netted to $345,647 in the nine months ended
September 30, 2000 compared with $302,191 in the same 1999 period. Interest
income for the nine months ended September 30, 2000, amounted to $402,902
compared with interest income of $380,941 recorded in 1999.
NET INCOME
For the reasons cited above, net income for the nine months ended
September 30, 2000 declined to $874,139 compared with net income of $984,502
in the same 1999 period. This resulted in earnings per diluted common and
common equivalent share of $.15, compared with $.17 the nine months ended
September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities during the nine months ended September 30, 2000
provided cash of $1,431,555, primarily reflecting the reduction of accounts
receivable of $2,017,117. Conversely, increases to inventory and decreases to
accounts payable and other current liabilities used cash of $2,579,508 and
$684,937, respectively. In the nine months ended September 30, 1999, our
operating activities provided cash of $2,454,511, primarily reflecting net
income before depreciation and amortization and reduced by increases to
inventories and accounts receivable of $1,093,431 and $613,071, respectively.
However, increases to accounts payable and other current liabilities and
unearned maintenance revenue provided cash of $354,372 and $928,142,
respectively.
Cash used by investing activities amounted to $1,318,924 in the nine-month
period ended September 30, 2000. These investing activities were primarily due
to the acquisition of machinery and equipment for $852,540 and payments for
intangible assets of $491,544. Our investing activities used cash of
$3,516,013 in the nine months ended September 30, 1999. The net proceeds from
the sale of marketable securities provided net cash of $4,573,758 in the 1999
period, while we used cash for the purchase of in-process research and
development, the acquisition of machinery and equipment, and payments for
intangible assets in the amounts of $6,464,709, $804,759 and $869,681,
respectively.
9
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In the nine months ended September 30, 2000, our financing activities
used cash of $724,931, which included $177,874 for repayments of obligations
under capitalized leases and $731,135 for the repurchase of treasury stock. In
the comparable 1999 period, financing activities used net cash of $1,617,929,
including $1,474,907 for the repurchase of treasury stock, and $145,308 for
payments under capitalized leases.
For the reasons cited above, net cash decreased by $724,931 for the nine
months ended September 30, 2000, as compared with a net decrease of cash of
$1,617,929 in the same 1999 period. Our ending cash and cash-equivalents
balances as of September 30, 2000 and 1999 were $1,928,218 and $8,572,792,
respectively.
At September 30, 2000, our cash, cash equivalents, and marketable
securities balances totaled $7,903,678. We expect to use this cash for working
capital purposes, for improvements to facilities, for new product development
and tooling, for acquisition of production equipment and computers, and for
increased selling and marketing activities. Additionally, in July 1999 our
Board of Directors authorized us to increase our stock repurchase plan to
purchase up to 1,000,000 shares of our common stock. Under this authorization,
we may occasionally repurchase our common stock. We repurchased 65,000 shares
for an aggregate price of $435,097 in the third quarter of 2000. This brings
the total number of shares repurchased under the stock repurchase plan to
652,000. We believe that our revenue from operations, our current cash and cash
equivalents balances, and the proceeds from the sale of short-term marketable
securities should provide sufficient cash resources to finance our operations
for at least 24 months.
As of September 30, 2000, our gross accounts receivable balance was
$10,227,309, less an allowance of $488,169 for returns and doubtful accounts.
Historically, our bad debt expense has been minimal. However, at September 30,
2000, large balances, some of which exceeded our normal payment terms, were
concentrated with certain international distributors and large customers.
While we can give no assurances, we believe that most, if not all, the
accounts receivable balances ultimately will be collected.
Our total current assets amounted to $27,598,853 at September 30, 2000,
the majority of which consisted of cash, cash equivalents, marketable
securities, inventories and accounts receivable. Total current liabilities
amounted to $7,794,342. Our debt is minimal, consisting primarily of principal
payments due under capital leases of $370,367. We estimate that we will spend
approximately $250,000 in the remainder of 2000 for facility improvements,
production and R&D equipment, computers and integrated software, and tooling,
which we anticipate financing through internally generated cash flows. As of
September 30, 2000, material commitments for inventory purchases from selected
vendors for the ensuing twelve-month period ending September 30, 2001 should
amount to approximately $3,000,000.
INFLATION
We believe that inflation has not had a material effect on our operations
or on its financial condition.
FOREIGN CURRENCY TRANSACTIONS
Substantially all of our transactions are negotiated, invoiced, and paid
in US dollars. Fluctuations in the currency exchange rates in other countries
may therefore reduce the demand for our products by increasing the price of
our products in the currency of countries in which the local currency has
declined in value.
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 us 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
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increases in net sales of rapid prototyping systems and services, and our
ability to maintain our gross margins on these sales. The forward-looking
statements also cover the plans and objectives of management to introduce new
products, control expenses, and improve profitability. 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 we (1) will be able to continue to
introduce new rapid prototyping systems acceptable to the market and improve
existing technology and software in our current product offering, (2)will be
able to maintain our gross margins on our present products, (3) will be able
to control our operating expenses, and (4) will be able to retain and recruit
employees with the necessary skills to produce, develop, market, and sell our
products. 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 our control.
Although we believe 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 us to
alter our marketing plans, our capital expenditure budgets, or our engineering
, selling or other budgets, which may in turn affect our results of operations
or the success of our engineering efforts. Due to the factors noted above and
elsewhere in the Management's Discussion and Analysis of Financial Condition
and Results of Operations, our future earnings and stock price may be subject
to significant volatility, particularly on a quarterly basis. Additionally, we
may not learn of revenue or earnings shortfalls until late in a fiscal
quarter, since we frequently receive the majority of our orders very late in a
quarter. This could result in an immediate and adverse effect on the trading
price of our 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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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Selected Financial Data.
(b) Reports on Form 8-K.
None
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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: November 13, 2000 STRATASYS, INC.
By: /s/Thomas W. Stenoien
------------------------
Thomas W. Stenoien
Chief Financial Officer
(Principal Financial Officer)
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Exhibit Index
Exhibit Description
27.1 Selected Financial Data
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