<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, 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
--------------------------------- -----------------
(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)
(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 8, 2000, the Registrant had 6,120,994 shares of Common
Stock, $.01 par value, outstanding.
<PAGE> 2
STRATASYS, INC.
Index
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. Financial Information
Item 1. Financial Statements ........................................................................... 1
Balance Sheets as of June 30, 2000 and December 31, 1999 ........................... 1
Statements of Income and Comprehensive Income (Loss) for the three and six months
ended June 30, 2000 and 1999 ....................................................... 2
Statements of Cash Flows for the six months ended
June 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 4. Submission of Matters to a Vote of Security Holders ........................................... 12
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>
-----------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
2000 1999
(UNAUDITED)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,657,387 $ 2,532,359
Marketable securities 6,095,470 6,000,620
Accounts receivable, less allowance for returns and
doubtful accounts of $500,372 in 2000 and $420,833 in 1999 10,013,352 11,756,257
Inventories 8,849,750 6,647,265
Prepaid expenses 536,003 429,211
Deferred income taxes 214,000 214,000
-------------------------------
Total current assets 28,365,962 27,579,712
-------------------------------
PROPERTY AND EQUIPMENT, net 3,148,258 3,235,362
-------------------------------
OTHER ASSETS
Intangible assets, net 3,623,537 3,409,708
Deferred income taxes 2,215,106 2,507,000
Other 365,054 381,534
-------------------------------
6,203,697 6,298,242
-------------------------------
$37,717,917 $37,113,316
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Obligations under capitalized leases, current portion $ 211,104 $ 230,229
Accounts payable and other current liabilities 3,852,674 3,855,447
Unearned maintenance revenue 4,184,436 3,926,583
-------------------------------
Total current liabilities 8,248,214 8,012,259
-------------------------------
OBLIGATIONS UNDER CAPITALIZED LEASES, less current portion 209,600 318,012
-------------------------------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, authorized 15,000,000
shares, issued 6,120,994 shares
in 2000 and 6,101,961 shares in 1999 61,210 61,020
Capital in excess of par value 32,771,642 32,712,755
Accumulated deficit (1,001,222) (1,703,880)
Accumulated other comprehensive income (loss) (28,247) (39,608)
Less cost of treasury stock, 587,000 shares in 2000
and 542,600 shares in 1999 (2,543,280) (2,247,242)
-------------------------------
Total Stockholders' Equity 29,260,103 28,783,045
-------------------------------
$37,717,917 $37,113,316
===============================
</TABLE>
See notes to financial statements.
<PAGE> 4
STRATASYS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2000 1999 2000 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ 9,023,247 $ 8,864,395 $ 18,321,254 $ 16,467,539
COST OF GOODS SOLD 3,071,631 3,232,610 6,463,923 5,642,704
-------------------------------- ---------------------------------
GROSS PROFIT 5,951,616 5,631,785 11,857,331 10,824,835
COSTS AND EXPENSES
Research and development 1,736,610 1,595,012 3,277,819 3,271,943
Selling, general and administrative 3,888,016 3,816,496 7,816,057 7,731,896
-------------------------------- ---------------------------------
5,624,626 5,411,508 11,093,876 11,003,839
-------------------------------- ---------------------------------
OPERATING INCOME (LOSS) 326,990 220,277 763,455 (179,004)
-------------------------------- ---------------------------------
OTHER INCOME
Interest income 156,141 132,548 273,406 255,532
Interest expense (16,138) (30,895) (33,063) (45,888)
-------------------------------- ---------------------------------
140,003 101,653 240,343 209,644
-------------------------------- ---------------------------------
INCOME BEFORE INCOME TAXES 466,993 321,930 1,003,798 30,640
INCOME TAXES 140,099 109,002 301,140 10,725
-------------------------------- ---------------------------------
NET INCOME $ 326,894 $ 212,928 $ 702,658 $ 19,915
-------------------------------- ---------------------------------
EARNINGS PER COMMON SHARE
Basic $ 0.06 $ 0.04 $ 0.13 $ -
================================ =================================
Diluted $ 0.06 $ 0.04 $ 0.12 $ -
================================ =================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic 5,559,379 5,934,488 5,561,942 5,946,890
================================ =================================
Diluted 5,777,553 5,936,333 5,832,340 5,949,682
================================ =================================
COMPREHENSIVE INCOME (LOSS)
NET INCOME $ 326,894 $ 212,928 $ 702,658 $ 19,915
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment (1,234) (583) (28,247) (33,847)
-------------------------------- ---------------------------------
COMPREHENSIVE INCOME (LOSS) $ 325,660 $ 212,345 $ 674,411 $ (13,932)
================================ =================================
</TABLE>
See notes to financial statements.
<PAGE> 5
STRATASYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
2000 1999
(UNAUDITED) (UNAUDITED)
------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 702,658 $ 19,915
Adjustments to reconcile net income to net
cash used in operating activities:
Deferred taxes 291,894 10,725
Depreciation 603,891 629,591
Amortization 180,047 417,041
Bad debts
Increase (decrease) in cash attributable to
changes in assets and liabilities
Accounts receivable 1,742,905 (454,715)
Inventories (2,202,485) (84,374)
Prepaid expenses (106,792) (200,648)
Other assets 16,480
Accounts payable and other current liabilities (2,773) (183,884)
Unearned maintenance revenue 257,853 835,924
--------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,483,678 989,575
--------------------------------
Cash flows from Investing activities
Proceeds from sale of (payments for purchases of)
marketable securities, net (94,850) 3,874,187
Acquisition of machinery and equipment (516,787) (710,870)
Payments for intangible assets (393,876) (695,805)
Proceeds from other assets, net 39,553
Purchased in-process research and development (6,464,709)
--------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,005,513) (3,957,644)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of obligations under capitalized leases (127,537) (101,047)
Net proceeds from the sale of common stock 59,077 2,286
Repurchase of treasury stock (296,038) (183,220)
--------------------------------
NET CASH USED IN FINANCING ACTIVITIES (364,498) (281,981)
--------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 11,361 5,109
--------------------------------
NET INCREASE (DECREASE) IN CASH 125,028 (3,244,941)
CASH AND CASH EQUIVALENTS, beginning of period 2,532,359 11,243,839
--------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 2,657,387 $ 7,998,898
================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash paid during the period for interest $ 33,063 $ 45,888
================================
</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
months ended June 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 consisted of the following at June 30 and December 31,
respectively:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Finished Goods $4,600,120 $3,715,292
Work in process 426,296 50,103
Raw materials 3,823,333 2,881,870
---------- ----------
Totals $8,849,750 $6,647,265
========== ==========
</TABLE>
Note 3--Material Commitment
The Company has signed material commitments with several vendors for
fixed delivery of selected inventory expected to be supplied in the ensuing
six-month period. These commitments amount to approximately $3,600,000, 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 six months ended June 30, 2000 and 1999, these amounted to
270,398 and 2,792, 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 devices, modeling materials, and software
enhancements. Our primary business strategy will focus on expanding
international and domestic sales of our existing family of rapid prototyping
devices, while maintaining on-going development of new rapid prototyping
equipment, modeling materials, and software.
In July 2000, we introduced Prodigy(TM). Prodigy is 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 have a backlog of orders for Prodigy and 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 six months
ended June 30, 2000, increased by approximately 11% over the revenue recorded in
the same 1999 period. We can give no assurances, however, that these trends will
continue.
We have continued to increase our expenditures on research and
development ("R&D") for both new products and sustaining engineering. R&D
expenses amounted to $1,736,610 in the second quarter of 2000 compared with
$1,595,012 recorded in the comparable 1999 period. R&D expenses are expected to
expand moderately from the levels attained in the second 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 increased modestly to $3,888,016 in the second
quarter of 2000 as compared with $3,816,496 in the same 1999 period, although we
expect that SG&A expenses will trend higher on increasing revenue throughout
2000. Our headcount has increased to approximately 220 employees and contractors
at the end of the second quarter of 2000 from approximately 189 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. While we
believe that profitability will improve in 2000 as compared with 1999 as a
result of higher sales coupled with operating expense control, we can give no
assurance that these results will be achieved.
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,
5
<PAGE> 8
part durability, and rapid tooling, which should allow growth to continue for
higher priced rapid prototyping systems addressing these needs.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2000 COMPARED WITH THE QUARTER ENDED JUNE 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 June 30,
2000 1999
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 34.0 % 36.5%
Gross margin 66.0 % 63.5%
Selling, general, and administrative expenses 43.1% 43.1%
Research and development expense 19.2% 18.0%
Operating income 3.6% 2.5%
Other income (net) 1.6% 1.1%
Income before taxes 5.2% 3.6%
Income taxes 1.6% 1.2%
Net income 3.6% 2.4%
</TABLE>
NET SALES
Net sales for the quarter ended June 30, 2000 were $9,023,247,
compared with net sales of $8,864,395 for the quarter ended June 30, 1999. This
represents an increase of $158,852, or 1.8%. However, our sales order backlog
increased by more than 40% over the first quarter of 2000 following our Prodigy
introduction. Benchtop systems, especially the FDM 3000 with WaterWorks, and
Quantum constituted the largest component of our product mix. Consumable and
maintenance revenue also increased in the quarter ended June 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.
Unit shipments decreased by approximately 7% in the second quarter
of 2000 as compared with 1999. System sales included sales of all systems,
including trade-in and upgrade systems. The average selling price of our systems
also declined slightly in the current quarter as compared with the same 1999
period. Product mix can dramatically affect the average selling price in any
quarter.
Domestic sales accounted for approximately 60% of total revenue in
the quarter ended June 30, 2000, which was significantly above the 49% recorded
in the comparable period in 1999. In the United States, the central and west
regions were particularly strong. Europe accounted for approximately 18% of
total revenue in the second quarter of 2000 as compared to approximately 22% in
the comparable period of 1999. However, sales into Europe improved from the
levels attained in the first quarter. Our combined Asia-Pacific region, which
comprises the Far East, Southeast Asia, and India, accounted for approximately
21% of total revenue in the second quarter of 2000. While this region was down
slightly from 22% attained in 1999, the results met our expectations.
Historically, we have derived a larger percentage of our revenues from our
European region, and will be introducing some steps to improve our performance
in this region. 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 as well as our domestic territories are
expected to
6
<PAGE> 9
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, or that sales into our domestic territories will
continue to improve.
GROSS PROFIT
Gross profit increased to $5,951,616, or 66% of sales, in the
quarter ended June 30, 2000, compared with $5,631,785, or 63.5% of sales, in the
quarter ended June 30, 1999. This represents an increase of $319,831, or 5.7%.
Gross profit was positively impacted in the 2000 period by higher system and
recurring revenues and lower labor and overhead expenses. It was negatively
impacted by product mix shifts to lower margin products. 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 reported gross profit in future quarters.
OPERATING EXPENSES
SG&A expenses increased to $3,888,016 for the quarter ended June 30,
2000, from $3,816,496 for the quarter ended June 30, 1999. This represents an
increase of $71,520, or 1.9%, approximately matching our revenue growth. 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, on the other hand, declined significantly as
compared with the quarter ended June 30, 1999. SG&A expenses can be expected to
increase 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 increased to $1,736,610 for the quarter ended June 30,
2000 from $1,595,012 for the quarter ended June 30, 1999. The increase in 2000
over 1999 amounted to $141,598, or 8.9%. While payroll expenses were
significantly higher in the quarter ended June 30, 2000 compared with the same
1999 period, we reduced expenses for 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 second 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 should not
be anticipated until the fourth quarter of 2000.
Our operating income for the quarter ended June 30, 2000 amounted to
$326,990, or 3.6% of sales, compared with operating income of $220,277, or 2.5%
of sales, for the quarter ended June 30, 1999.
OTHER INCOME
Other income and expense netted to $140,003 in the quarter ended
June 30, 2000 compared with $101,653 in the same 1999 period. Interest income
amounted to $156,141 compared with interest income of $132,548 recorded in 1999.
NET INCOME
For the reasons cited above, net income for the quarter ended June
30, 2000 improved to $326,894 compared with net income of $212,928 in the same
1999 period. This resulted in earnings per diluted common and common equivalent
share of $.06, compared with $.04 in the period ended June 30, 1999.
7
<PAGE> 10
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH THE SIX MONTHS ENDED JUNE 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.
<TABLE>
<CAPTION>
For the six months ended June 30,
2000 1999
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 35.3 % 34.3%
Gross margin 64.7 % 65.7%
Selling, general, and administrative expenses 42.7% 47.0%
Research and development expense 17.9% 19.9%
Operating income (loss) 4.2% (1.1%)
Other income (net) 1.3% 1.3%
Income before taxes 5.5% 0.2%
Income taxes 1.6% 0.1%
Net income 3.8% 0.1%
</TABLE>
NET SALES
Net sales for the six months ended June 30, 2000 were $18,321,254,
compared with net sales of $16,467,539 for the six months ended June 30, 1999.
This represents an increase of $1,853,715, or 11.3%. Our Benchtop systems,
especially the FDM 3000 with WaterWorks, and Quantum constituted the largest
component of our product mix. Consumable and maintenance revenue also increased
in the six months ended June 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.
Unit shipments increased by approximately 18% in the six months
ended June 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 six-month period ended June 30, 2000
as compared with the same 1999 period. Strong unit growth of our Benchtop and
Genisys products had a significant impact on the average selling price in the
current six-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 60% of total revenue in
the six months ended June 30, 2000, which was significantly above the 49.2%
recorded in the comparable period in 1999. In the United States, the central and
west regions were particularly strong. Europe accounted for approximately 16% of
total revenue in the six months ended June 30, 2000 as compared to approximately
17% in the same period of 1999. Our combined Asia-Pacific region, which
comprises the Far East, Southeast Asia, and India, accounted for 20.4% of total
revenue in the six months ended June 30, 2000. This region was down from 25%
attained in 1999, but the results met our expectations for the six-month period
8
<PAGE> 11
GROSS PROFIT
Gross profit increased to $11,857,331, or 64.7% of sales, in the six
months ended June 30, 2000, compared with $10,824,835, or 65.7% of sales, in the
quarter ended June 30, 1999. This represents an increase of $1,032,496, or 9.5%.
Gross profit was positively impacted in the 2000 period by higher system and
recurring revenues and lower labor and overhead expenses, due in part to
increased capitalization. It was negatively impacted by product mix shifts to
lower margin products.
OPERATING EXPENSES
SG&A expenses increased to $7,816,057 for the six months ended June
30, 2000, from $7,731,896 for the same period of 1999. This represents an
increase of $84,161, or 1.1%, significantly below our revenue growth rate. As a
percentage of sales, SG&A expenses amounted to 42.7% of sales in the six months
ended June 30, 2000, as compared to 47% 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 six
months ended June 30, 1999. SG&A expenses can be expected to increase in second
half 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 increased to $3,277,819 for the six months ended June
30, 2000 from $3,271,943 for the same period of 1999. The increase in 2000 over
1999 amounted to $5,876, or .2%. While payroll expenses were significantly
higher in the six months ended June 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 first
six months 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, and expect some expense relief as a result of the July
2000 R&D management consolidation mentioned above.
Our operating income for the six months ended June 30, 2000 amounted
to $763,455, or 4.2% of sales, compared with an operating loss of $179,004, or
(1.1%) of sales, for the six months ended June 30, 1999.
OTHER INCOME
Other income and expense netted to $240,343 in the six months ended
June 30, 2000 compared with $209,644 in the same 1999 period. Interest income
for the six months ended June 30, 2000, amounted to $273,406 compared with
interest income of $255,532 recorded in 1999.
NET INCOME
For the reasons cited above, net income for the six months ended
June 30, 2000 improved to $702,658 compared with net income of $19,915 in the
same 1999 period. This resulted in earnings per diluted common and common
equivalent share of $.12, compared with nil in the six months ended June 30,
1999.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities during the six months ended June 30, 2000
provided cash of $1,483,678, primarily reflecting the reduction of accounts
receivable of $1,742,905 and an increase in unearned maintenance revenue of
$257,853. Conversely, increases to inventory and prepaid expenses used cash of
$2,202,485 and $106,792, respectively. In the six months ended June 30, 1999,
our operating activities provided cash of $989,575, primarily reflecting the
increase to unearned maintenance of $835,575. However, increases to inventory
and prepaid expenses used cash of
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<PAGE> 12
$454,715 and $200,648, respectively, in the 1999 period.
Cash used by investing activities amounted to $1,005,513 in the
period ended June 30, 2000. These investing activities were primarily due to the
acquisition of machinery and equipment for $516,787 and payments for intangible
assets of $393,876. Our investing activities used cash of $3,957,644 in the six
months ended June 30, 1999. The net proceeds from the sale of marketable
securities provided net cash of $3,874,187 in the 1999 period, while we used
cash for the purchase of in-process research and development, for the
acquisition of machinery and equipment, and for payments for intangible assets
in the amounts of $6,646,709, $710,870 and $695,805, respectively.
In the six months ended June 30, 2000, our financing activities used
cash of $364,498, which included $127,537 for repayments of obligations under
capitalized leases and $296,038 for the repurchase of treasury stock. In the
comparable 1999 period, financing activities used net cash of $281,981,
including $183,220 for the repurchase of treasury stock, and $101,047 for
payments under capitalized leases.
For the reasons cited above, net cash increased by $125,028 for the
six months ended June 30, 2000, as compared with a net decrease of cash of
$3,244,941 in the same 1999 period. Our ending cash and cash- equivalents
balances as of June 30, 2000 and 1999 were $2,657,387 and $7,998,898,
respectively.
At June 30, 2000, our cash, cash equivalents, and marketable
securities balances totaled $8,752,857. We expect to use this cash for working
capital purposes, for improvements to facilities, for acquisitions, 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
approximately 44,000 shares in the second quarter of 2000, for a total price of
$296,038. This brought the total number of shares repurchased under the plan to
587,000. 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.
Except for 1998 and 1999, we have historically been unable to
finance our growth from cash generated from operations. Furthermore, our working
capital requirements may significantly increase if revenue growth slows, if R&D
expenses related to new product development accelerate, or if significant
operating losses occur. We can give no assurances as to the adequacy of our
working capital to support our operations following a period of losses. If the
existing cash balances are insufficient or if working capital requirements are
greater than estimated, we could be required to raise additional capital. There
can be no assurance that we will be able to raise additional capital or that the
terms upon which such capital will be available to us will be acceptable.
As of June 30, 2000, our gross accounts receivable balance was
$10,513,724, less an allowance of $500,372 for returns and doubtful accounts.
Historically, our bad debt expense has been minimal. However, at June 30, 2000,
large balances, some of which exceeded our normal payment terms, were
concentrated with certain international distributors. 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 $28,365,962 at June 30, 2000,
the majority of which consisted of cash, cash equivalents, marketable
securities, inventories and accounts receivable. Total current liabilities
amounted to $8,248,214. Our debt is minimal, consisting primarily of principal
payments due under capital leases of $420,704. We estimate that we will spend
approximately $700,000 during 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
June 30, 2000, material commitments for inventory purchases from selected
vendors for the ensuing six-month period ending December 31, 2000 should amount
to approximately $3,600,000.
10
<PAGE> 13
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 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.
11
<PAGE> 14
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,
2000. 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 5,222,966 34,254
Ralph E. Crump 5,222,326 34,894
Clifford H. Schwieter 5,225,066 32,154
Arnold J. Wasserman 5,217,866 39,354
Gregory L. Wilson 5,224,476 32,744
Cameron Truesdell 5,209,936 47,284
</TABLE>
At the Annual Meeting, the stockholders approved the following
proposal by the number of votes indicated below:
Approval of the Stratasys 2000 Incentive Stock Option Plan:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
5,137,935 101,054 18,231
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Selected Financial Data.
(b) Reports on Form 8-K.
None
12
<PAGE> 15
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 11, 2000 STRATASYS, INC.
By: /s/Thomas W. Stenoien
------------------------
Thomas W. Stenoien
Chief Financial Officer
(Principal Financial Officer)
13
<PAGE> 16
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
27.1 Selected Financial Data
</TABLE>
