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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO 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)
DELAWARE 36-3658792
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
14950 MARTIN DRIVE, EDEN PRAIRIE, MINNESOTA 55344
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 937-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
Name of Each Exchange on Which
Title of Each Class Each Class is Registered
Common Stock, $.01 par value The Pacific Exchange Inc.
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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/ /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of March 27, 2000 was approximately
$40,968,364. On such date, the closing price of the Registrant's Common Stock,
as quoted on the Nasdaq National Market, was $9.031.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of the Annual Report on Form 10-K is herein incorporated by
reference from the Registrant's Definitive Proxy Statement to be filed with the
Securities and Exchange Commission with respect to the Registrant's Meeting of
Stockholders scheduled to be held on May 11, 2000.
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ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Stratasys, Inc. ("Stratasys" or the "Company") manufactures and sells a
line of rapid prototyping ("RP") devices that create physical models from
computerized designs. It was incorporated in Delaware in 1989 and its executive
offices are located in Eden Prairie, Minnesota. Its rapid prototyping systems
are based on the Company's core patented fused deposition modeling ("FDM(R)")
technology or on recently developed and patented Genisys(R) technology. The
Company sold its first product, the 3-D Modeler, commercially in April 1992 and
introduced its second product, the Benchtop, in June 1993. Other significant
developments in the Company's business are set forth below:
- - On October 20, 1994, the Company successfully completed an initial public
offering of 1,380,000 shares of its common stock, including 180,000 shares
issued upon exercise of the underwriter's over-allotment option. The shares
of common stock were sold at $5.00 per share with the Company receiving net
proceeds of approximately $5,700,000. The underwriter was also granted
warrants to purchase up to 120,000 shares of common stock, exercisable at
$7.50 per share, until October 1999, all of which have been exercised.
- - On January 1, 1995, the Company purchased certain rapid prototyping assets
from International Business Machines Corporation, pursuant to an Assignment
and Sale of Rapid Prototyping Technology and Related Assets Agreement dated
as of January 1, 1995.
- - In March 1996, the Company announced three new products, Genisys, the FDM
1650, and the FDM 8000, each of which is oriented to separate stages of a
customer's product development cycle. Shipments of the FDM 1650 began in
March 1996 and shipments of Genisys began in June 1996. Shipments of the
FDM 8000 began in the first quarter of 1997.
- - In March 1997, the Company announced the FDM 2000, an enhanced version of
the Company's FDM 1650. The Company began shipping the FDM 2000 in the
first quarter of 1997.
- - In November 1997, the Company announced that the United States Food and
Drug Administration granted 510(k) clearance for the Company's MedModeler
system, a rapid prototyping system designed for the medical market for
anatomical part output from MRI and CT scans.
- - In January 1998, the Company introduced the FDM Quantum(R), which offers
large modeling capabilities (second largest build envelope in the industry)
combined with significant speed and performance enhancements as compared
with the FDM(R) 2000. This product incorporates MagnaDrive technology that
allows the extrusion heads to move on a bed of air while controlled by
electro-magnetic homing devices. Commercial shipments commenced in the
first quarter of 1998.
- - In January 1999, the Company announced the December 1998 acquisition of
rapid prototyping technology consisting of technological assets, including
software, documentation and know-how, and tangible personal property,
including machinery, equipment, and components of the rapid prototyping
technology. The Company paid the seller approximately $5,946,000 in cash
for this technology and issued the seller's members warrants to purchase
128,000 shares of the Company's common stock exercisable at $13.875 per
share. The Company also paid the seller $519,000 in early 1999 for invoiced
development work with respect to the technology. Further development of the
technology continued throughout 1999, with commercial introduction expected
in 2000.
- - In April 1999, the Company introduced the GenisysXs. This system offered
enhanced performance and speed improvements over the original Genisys.
Shipments of the GenisysXs commenced in May 1999.
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- - In August 1999, the Company introduced the FDM 3000 system based on the
Company's core FDM technology. The FDM 3000 features a build envelope 60%
larger than the Company's Benchtop systems. In conjunction with the FDM
3000, the Company introduced WaterWorks. The patented WaterWorks process
allows for the easy removal of supports from a completed prototype model by
simple immersion into a water-based solution. The support material is
dissolved, resulting in a cleaned prototype that eliminates most
post-processing requirements. The Company offered WaterWorks to users of
its FDM 2000 systems in the fourth quarter of 1999. The Company expects to
offer WaterWorks to FDM 8000 and FDM Quantum users in 2000.
DESCRIPTION OF BUSINESS
The Company is a leader in the three dimensional ("3D") imaging business,
which is referred to as "rapid prototyping". 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. In
many industries, the models and prototypes required in product development are
produced laboriously by hand-sculpting or machining, a traditional process that
can take days or weeks. The Company's computerized modeling systems use its
proprietary technology to make models and prototypes more directly from a
designer's three-dimensional CAD in a matter of hours.
The Company believes that the RP systems using its patented FDM technology
and Genisys technology are the only rapid prototyping systems commercially
available that can produce parts from plastic without relying on lasers. This
affords the Company's products a number of significant advantages over other
commercially available three-dimensional rapid prototyping technologies, which
primarily rely on lasers to create models. Such benefits include:
- - the ability to use the device in an office environment due to the absence
of hazardous emissions
- - the need for relatively little set up of the system for a particular
project
- - the availability of a variety of modeling materials
- - the lack of any need for costly replacement lasers and laser parts
The Company's systems can also run virtually unattended, producing models
while designers perform other tasks.
The process involved in the development of a three-dimensional model using
the Company's FDM systems begins with the creation of a conceptual geometric
model on a CAD workstation. The model is then imported into the Company's
proprietary QuickSlice(R) software program, which mathematically slices the
conceptual model into horizontal layers that are downloaded into the system.
These rapid prototyping machines basically draw cross-sections of the model one
layer at a time to create a three-dimensional "blueprint." A spool of thin
thermoplastic modeling material feeds into a moving FDM extruding head, which
heats the material to a semi-liquid state. This semi-liquid material is then
extruded and deposited in ultra-thin flat layers on a base (the "X-Y Stage") in
the modeling chamber. As the material is directed into place by the
computer-controlled head, layer upon layer, the material solidifies, creating a
precise and strong laminated model.
The Genisys modeling process is similar. Genisys uses Company's proprietary
AutoGen(R) software to slice the conceptual model created on a CAD workstation
into horizontal layers that are downloaded into Genisys. Genisys then uses
wafers of polyester modeling material, rather than spools of filament, to feed
the extrusion head. The extrusion head heats these wafers and, using a
precision hydraulic pump, deposits a continuous layer of plastic polymer roads
onto the X-Y Stage to create a three-dimensional model by building up layers.
In comparison to the FDM systems, due to its size, Genisys allows the
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prototype to be created on a desktop, directly from a workstation, like a 3D
printer. The Company's recently-introduced GenisysXs uses a modeling process
similar to the original Genisys system.
PRODUCTS
Modeling Equipment. The Company has been developing and improving its line
of rapid prototyping products since its inception in 1989. Since that time, the
Company has developed and sold systems including the 3D-Modeler, a smaller
Benchtop version of the 3DModeler called the FDM 1500 Benchtop, introduced in
June 1993; an improved Benchtop modeler called the FDM 1600 Benchtop, introduced
in November 1994; the Company's Protoslice operating software package; its
successors, QuickSlice(R) and AutoGen(R); and in some cases, a CAD workstation
manufactured by SGI. The FDM 1600 Benchtop offered customers more features than
its predecessor, the FDM 1500, including dual heads. As such, it had increased
hardware and software performance. Although the Company has discontinued sales
of the 3D Modeler, the FDM 1500, SGI workstations and the FDM 1600, it continues
to support and manufacture modeling materials for these systems. In addition,
the Company no longer sells ProtoSlice, the predecessor to QuickSlice.
In March 1996, the Company introduced three new rapid prototyping machines
for commercial sale. Genisys is a 3D desktop printer, which uses the rapid
prototyping technology developed by IBM that the Company purchased in 1995. It
is useful for the production of conceptual models employed in the early stages
of the design cycle, as it enables a designer to produce concept iterations at
his desk directly from a workstation in a simple push-button fashion. The FDM
1650 Benchtop can produce functional prototypes at higher speeds than those of
its predecessor, the FDM 1600 Benchtop, and can accommodate a variety of
engineering modeling materials. The third product, the FDM 8000, is a rapid
prototyping device that incorporates QuickSlice software and the filament
extrusion method of the Company's FDM products. It is capable of building
prototypes up to 24 inches in size with throughput comparable to the Stratasys
FDM 2000 described below. The FDM 8000 builds prototype parts using ABS
plastics. Distribution of the FDM 1650 Benchtop system began in March and the
Genisys system in June 1996, while shipment of the FDM 8000 began in the first
quarter of 1997.
The Company announced the FDM 2000 in March 1997. It is an enhanced version
of the FDM 1650, but features a 30% to 40% throughput improvement over the FDM
1650. Upgraded hardware and software accounts for the improved performance
features. The Company began shipping the FDM 2000 in the first quarter of 1997.
In November 1997, the Company announced that its MedModeler rapid prototyping
system had been granted 510(k) pre-market clearance from the FDA. The MedModeler
is a Benchtop rapid prototyping system designed for the medical market that
creates anatomical part output from computed tomography ("CT") and magnetic
resonance imaging ("MRI") devices.
In January 1998, the Company announced the FDM Quantum. This system
features the second largest build envelope in the industry and incorporates
MagnaDrive technology. The MagnaDrive technology, which allows the extrusion
head to float on a bed of air while being controlled through electromagnetic
devices, offers significant speed and performance enhancements as
compared with the FDM 2000. Commercial shipments of the FDM Quantum commenced
in the first quarter of 1998.
In April 1999, the Company introduced the GenisysXs. This system offers
enhanced performance and speed improvements over the original Genisys. Shipments
of the GenisysXs commenced in May 1999.
In August 1999, the Company introduced the FDM 3000 system based on the
Company's core patented fused deposition modeling ("FDM") technology. The FDM
3000 features a build envelope 60% larger than the Company's Benchtop systems.
In conjunction with the FDM 3000, the Company introduced WaterWorks. The
patented WaterWorks process allows for the easy removal of supports from a
completed prototype model by simple immersion into a water-based solution. The
support material is dissolved, resulting in a cleaned prototype that eliminates
most post-processing requirements. The Company offered WaterWorks to users of
its FDM 2000
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systems in the fourth quarter of 1999. The Company expects to offer WaterWorks
to FDM 8000 and Quantum users in 2000.
The Company's family of rapid prototyping systems offers product designers
and developers the ability to create prototypes throughout all stages of the
development cycle as well as a wide range of prices from which to choose. The
domestic list prices of the Company's systems range from $45,000 for Genisys and
reach $325,000 for the Quantum FDM. By comparison, the Company's original 3D
Modeler sold for between $150,000 and $180,000. The Company also offers special
pricing for trade-in systems and upgrades. Customers have the option to purchase
an entire rapid prototyping system from the Company or to buy individual
components.
Modeling Material. FDM technology allows the use of a greater variety of
modeling materials and colors than other technologies. The Company continues to
develop filament modeling materials that meet the customer's needs for increased
speed, strength, accuracy, surface resolution and color. These materials are
processed into its patented filament form, which is then fed into the FDM
systems. The Company's spool-based system has proven to be a significant
advantage for its products over Ultra Violet ("LTV") polymer systems, because
the Company's system allows the user to quickly change material by simply
mounting the spool and threading the desired material into the FDM devices.
Spools weigh from 1.0 pound to ten pounds, and the creation of a model may
require from 0.1 pound to more than one pound of filament. The spool-based
system also compares favorably with UV polymer system because the spool-based
system allows the customer to use the system in an office environment and to
purchase a single spool, as compared to an entire vat of UV polymer, thereby
reducing the customer's up-front costs.
Currently, the Company has six modeling materials commercially available
for use with its FDM technology:
- - an elastomer material for applications requiring strength, durability and
flexibility, as used in seals or tubing
- - an investment casting wax
- - the hard polymer material ABS (named for its three initial monomers,
acrylonitrile, butadiene and styrene), which is used commercially to make
products such as cellphones, computer cases and toys
- - a medical grade ABS (MABS), used for medical applications
- - a release material, which is used for-support and removed from the final
model
- - a water-soluble material, which is used for support during the build
process and which is later dissolved from the finished prototype
Each material has specific characteristics that make it appropriate for
various applications. The ability to use different materials allows the user to
match the material to the end use application of the prototype, whether it is a
pattern for tooling or a concept model.
Genisys uses only one type of modeling material, a plastic polymer, which
is manufactured in the form of wafers. A total of 50 wafers are held in a
cassette, which allows the wafers to be fed into the machine and rapidly
extruded in layers. Additional cassettes are easily loaded into the system. Each
cassette contains a memory chip that instructs the system as to the parameters
and melt temperature of the material lot, which optimizes the automatic build
process of the Genisys system.
The modeling filament and wafers are consumable products that provide
additional revenue for the Company.
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OPERATING SOFTWARE
The Company offers two proprietary software products: QuickSlice and
AutoGen. QuickSlice processes three-dimensional computer models to
generate operating data for the Company's FDM 1650, 2000, 3000, 8000, and
Quantum products. AutoGen performs the same function for the Company's
Genisys and GenesysXs 3-D Printers. The Company has retained copyrights and all
other ownership rights for AutoGen and QuickSlice.
QuickSlice is an interactive software product giving users choices
ranging from semi-automatic operations to a feature-rich array of options and
controls.
In 1994, the Company developed SupportWorks(R), which is used in
conjunction with QuickSlice to automatically generate support structures,
thereby eliminating a time-consuming manual step in the modeling process. In
1995, the Company integrated SupportWorks into QuickSlice, which is
currently priced at $15,000.
AutoGen is an easy-to-use software product, giving users automatic
operation for the Company's Genisys 3-D Printer. AutoGen is able to choose most
options and settings for the user, saving significant operator labor time.
AutoGen is included in the Genisys sales price.
APPLICATIONS OF RAPID PROTOTYPING
Rapid prototyping systems enable engineers and designers to produce models
of their engineering designs faster and cheaper than with conventional manual
methods. Most companies use rapid prototyping to accelerate new product
development and improve time to market. The prototypes themselves are used to
test a product's or assembly's form, function and fit to specific tolerances.
Companies also use 3D models for tooling as patterns for a variety of soft
tooling procedures. In addition, several domestic and international
manufacturers produce one-of-a- kind orthopedic implants for patients using CT
scanning and wax investment casting masters produced with the Company's
MedModeler FDM systems.
POTENTIAL FUTURE APPLICATIONS
The Company has positioned its products to be used as devices that support
CAD systems in a variety of design and manufacturing industries. Current
applications include:
- - automotive - government
- - aerospace - packaging
- - consumer products - form molding
- - electronics - investment casting
- - medical - service bureaus
- - education
Additional future applications include:
- - architectural design
- - rapid manufacturing of small-volume custom parts
- - free-form graphic design
- - secondary tooling and mold-making
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Among potential medical applications, rapid prototyping is being used to
produce accurate models of internal organs, bones or skulls for pre-operative
evaluations or modeling of prostheses. In such uses, the Company's MedModeler
is serving as a peripheral device for CT and MRI devices.
MARKETING, DISTRIBUTION AND CUSTOMERS
The strategic focus of the Company's marketing efforts begins with
identifying the needs of product managers, conceptual designers, design and
manufacturing engineers and production specialists in manufacturing and design
companies. The Company then seeks to understand a customer's needs and
requirements. To satisfy those needs, the Company offers a broad array of
products, ranging from the low cost, easy-to-use GenisysXs Printer, to the
large-scale, fast and precise FDM Quantum. The Company has sold systems to the
following representative customers.
REPRESENTATIVE CUSTOMERS
- - General Motors Corporation - Eastman Kodak Company
- Marubeni
- - Ford Motor Company
- Hewlett-Packard
- - Damiler Chrysler
- Brooks Air Force Base
- - Lockheed Martin
- - Square D. Company - Toyota
- Lego
- - Whirlpool Corporation
- Federal Bureau of Investigation
- - Callaway Golf
- NASA
- - Snap-On Tools Corporation
- Honda
- - Xerox
- - Biomet, Inc.
- - St. Jude Medical
- - Motorola
It has also sold systems to service bureaus, universities and distributors
in the United States and abroad. The Company sells complete rapid prototyping
systems as well as supplies and services.
The Company uses a variety of tactical marketing methods to reach potential
customers, including Web-based marketing, press releases, trade magazine
articles, advertisements, brochures, direct mailings, telemarketing programs,
trade show demonstrations, videos and a Web site (www.Stratasys.com). In
addition, the Company has developed domestic and international on-site
demonstration capabilities.
Domestically, the Company sells directly to its customers. In 1997, the
Company organized its domestic FDM sales force into three regions. Salespersons
and management reside in the regions they service. In addition, GenisysXs
resellers have been assigned to managers within this regional framework. The
Company markets internationally through a network of distributors and sales
representatives. During the years ended December 31, 1999, 1998 and 1997, export
sales amounted to approximately $19,753,300, $14,018,400, and $12,639,000,
respectively.
No customer accounted for more than 10% of sales in 1999, 1998 or 1997.
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WARRANTY AND SERVICE
The Company provides a 90-day warranty on its systems sold domestically and
a one-year warranty on those sold internationally. In addition, the Company
offers annual service and maintenance contracts for its systems. The service
contracts include updates of the Company's software systems. Annual service
contracts for the Company's FDM systems are priced from $2,500 to $50,000,
while annual service contracts for the GenisysXs system are priced from $6,000
to $ 10,000.
MANUFACTURING
The Company's manufacturing process consists of the assembly of purchased
components. The Company obtains all parts used in the manufacturing process
either from distributors of standard electrical or mechanical parts or from
custom fabricators of the Company's proprietary designs. The Company currently
operates on a build-to-inventory basis.
The Company purchases the major component parts for its FDM and
Genisys systems from various outside vendors, subcontractors and other
sources and assembles them at its Minnesota facility. In 1999, the Company
reorganized the assembly line using demand-flow techniques. Subassembles are
built to satisfy kanban levels required for final assembly. Material Requisition
Planning ("MRP") was implemented to order parts to satisfy production
requirements based on sales forecasts. The Company performs numerous diagnostic
tests and quality control procedures throughout the assembly process in order to
assure reliability of its products. Prior to shipment, each unit is subjected to
a test and burn-in procedure to check for defects. Precision modeling parameters
are also checked.
The Company maintains an inventory of most of its necessary supplies, which
facilitates the assembly of products required for production. The Company's sole
current supplier of the X-Y Stage for the FDM 2000, FDM 3000 and FDM 8000
systems is Asymtek; and its sole current supplier of the FDM head motors is
MircoMo Electronics, Inc. The Company also has sole suppliers for two key
components of its FDM Quantum system. The Company considers all of these
suppliers to be reliable. Nevertheless, the Company maintains an inventory of
such components to support continued supply. Furthermore, the Company believes
that the supplier of the X-Y Stage could be replaced by in-house design and
production of the part within a three-month period, if necessary; and the
Company could employ FDM head motors from other suppliers by modifications to
the design of the FDM 2000, 3000 and 8000 systems. In-house development to
replace the vendors of the Quantum components would take four to eighteen
months to accomplish. In regard to other parts and materials, the Company uses
multiple sources of supply and does not believe that it is dependent on any
single supplier. Although the Company believes that it maintains adequate
inventories of vendor-specific materials, the loss of a supplier of such
vendor-specific materials or compounds could result in a delay in the
manufacture and delivery of those materials and compounds resulting from the
need to retest and recertify products supplied by one or more new vendors. The
Company considers its relationships with its suppliers to be good.
RESEARCH AND DEVELOPMENT
The Company has devoted significant time and resources to the development
of a universally compatible and user-friendly software system. The Company
believes that ongoing research and development efforts are essential to its
continued success. Accordingly, the Company's engineering development efforts
will continue to focus on improvements to the FDM and Genisys technology
and development of new modeling processes, materials, software and products. To
date, much of the Company's activity has been focused on research and
development. For the years ended December 31, 1999, 1998, and 1997, the
Company's research and development expenses, excluding the non-recurring charge
for purchase of in-process engineering, were approximately $6,583,000,
$5,944,000 and $5,055,000, respectively.
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The Company's filament development and production operation is located at
its facility in Eden Prairie, Minnesota. The Company regards the filament
formulation and manufacturing process as a trade secret, and the Company holds
patent claims on filament usage in its products.
INTELLECTUAL PROPERTY
The Company considers its proprietary technology to be material to the
development, manufacture, and sale of its products and seeks to protect its
technology through a combination of patents and confidentiality agreements with
its employees and others. Scott Crump, the Company's President, was granted two
U.S. patents that cover many claims relating to various aspects of its products,
FDM technology and the associated modeling process. The term of one patent lasts
until June 9, 2009, and the term of the other lasts until August 23, 2011. The
patents have been assigned to the Company. In addition, other employees of the
Company have assigned to the Company patents and patent applications for other
rapid prototyping processes and apparatuses associated with the FDM process. As
part of its purchase of rapid prototyping technology assets from IBM, the
Company was also assigned the rights and title to three patents developed by
IBM, which cover the Genisys system and which the Company believes will further
augment its own product lines. The Company recorded these patents domestically
and is in the process of recording them in certain foreign countries. The terms
of these patents extend until June 7, 2005, April 12, 2011, and May 17, 2011. In
total, the Company currently owns thirteen primary U.S. patents.
Corresponding patent applications covering the same claims that are
contained in the Company's issued patents have been initiated in various foreign
countries. Other foreign patent applications have also been filed, including the
patent applications assigned to the Company by IBM. The Company's registered
trademarks include:
REGISTERED TRADEMARKS
- - Stratasys, Inc. - Genisys
- - 3D Modeler - AutoGen
- - QuickSlice - 3D Visualizer
- - 3D Plotter - FDMM
- - 3D Visualizer - FDC
- - FDM - BMD
- FDM Quantum
Each of the registered trademarks has a duration of 10 years and may be
renewed every 10 years while it is in use. Trademark applications have also been
filed in Japan and the European Community.
Stratasys has also registered the following Internet domain names:
- - prototype.com - webmodeling.com
- - webprototypes.com - 3D-fax.com
- - 3Dprinter.com - Stratasys.com
WORKING CAPITAL PRACTICES
The Company does not engage in unusual practices regarding inventories,
receivables or other items of working capital.
BACKLOG
The Company's total backlog of orders at December 31, 1999 was
approximately $4 million, as compared with $3.5 million at December 31, 1998.
Management estimates that 10% of the Company's backlog
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will not be shipped in 2000. Since sales of the Company's products are typically
strongest in the fourth quarter, orders during that period have a significant
bearing on the Company's backlog for the subsequent fiscal year.
COMPETITION
The Company competes in a marketplace that is still dominated by
conventional methods of model-making and prototype development. Machinists and
engineers working from blueprints or CAD files and using machining or by-hand
methods generally perform the prototype development and fabrication. The Company
believes that there is currently no other commercial producer of 3D modeling
devices that uses a single-step, non-toxic technology similar to the Company's
FDM and Genisys technologies. Most other rapid prototyping or 3D printing
systems involve an additional post-processing step, such as curing the part
after construction of the model or prototype. The Company's FDM and Genisys
technologies do not rely on the laser or light technology used by many other
commercial manufacturers in the rapid prototyping industry.
The Company's competitors employ a number of different technologies in
their rapid prototyping devices. 3D Systems, D-MEC, Mitsui and Teijin Seiki Co.
use stereolithography in their products. 3D Systems introduced the first rapid
prototyping product. The Company believes that 3D Systems accounts for
approximately 29% of sales of rapid prototyping units to date. DTM
Corporation and EOS produce machines that use lasers to sinter or harden
powdered material. Helisys, Inc. utilizes lasers to cut and laminate sheets of
materials, such as paper. Z Corp. uses inkjet technology to sinter powdered
materials. Sanders Prototype, Inc. and 3D Systems have developed prototyping
systems that use inkjet technology to deposit wax material layer by layer,
which can be used in an office environment. A smoothing or milling process is
required between each deposited layer to maintain accuracy in these processes.
The Company believes that its FDM and Genisys technologies have important
advantages over the products of these companies. These advantages include:
- - the ability to be used in an office environment
- - the availability of multiple modeling materials
- - a one-step process
- - ease of use
- - hands-free support removal
Certain of the Company's competitors have greater financial and
marketing resources than the Company. The Company believes that in the three
year period ending in 1999, it sold more units than any other rapid prototyping
company and was the second largest RP company in revenue.
EMPLOYEES
As of March 20, 2000, the Company had 186 full-time employees and 13
subcontractors or temporary employees. While the Company has separate internal
departments, such as manufacturing, marketing, engineering and sales, many
employees perform overlapping functions within the organization. No employee is
represented by a union, and the Company has not experienced a work stoppage.
The Company believes its employee relations are good.
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GOVERNMENTAL REGULATION
GENERAL
The Company is subject to various local, state and federal laws,
regulations and agencies that affect businesses generally. These include:
- - regulations promulgated by federal and state environmental and health
agencies
- - the federal Occupational Safety and Health Administration
- - laws pertaining to the hiring, treatment, safety and discharge of employees
FDA REGULATION
The FDA has the authority to regulate the preclinical and clinical testing,
manufacture, labeling, distribution, and promotion of the Company's MedModeler
FDM system as a Class II medical device under the Federal Food, Drug, and
Cosmetic Act of 1976. Before a new device can be introduced into the market, the
manufacturer must generally obtain prior FDA permission to market it through
either clearance of a 510(k) notification to the FDA or approval of a pre-market
application ("PMA"). The FDA will grant a 510(k) clearance if the submitted
information establishes that the proposed device is "substantially equivalent"
to a legally marketed Class I or 11 medical device or to a Class III medical
device for which the FDA has not called for PMA's. After a device receives
510(k) clearance from the FDA, any modification that could significantly affect
its safety or effectiveness, or would constitute a major change in the intended
use of the device, will require a new 510(k) submission.
In November 1997, the Company announced that the FDA granted the MedModeler
FDM system 510(k) clearance. The Company has subsequently made modifications to
the MedModeler, which it believes do not require the submission of a new 510(k)
notification. There can be no assurance, however, that the FDA would agree with
the determination by the Company not to submit, or would not require the Company
to submit, a new 510(k) notification for any of these changes. If the FDA
requires the Company to submit a new 510(k) notification for any device
modification, the Company may be prohibited from marketing the modified device
until the 510(k) notification is cleared by the FDA.
The MedModeler and any other medical devices manufactured or distributed by
the Company will be subject to pervasive and continuing regulation by the FDA.
The Company's medical sector manufacturing facility will be subject to
inspection by the FDA to assure compliance with its Quality System Regulation
("QSR"), which imposes testing, control, documentation and other quality
assurance procedures. In addition, the Company will be subject to other
regulatory requirements that usually apply to medical devices marketed in the
United States, including :
- - labeling regulations
- - Medical Device Reporting ("MDR") regulations which require that a
manufacturer report to the FDA certain types of adverse events involving
its products
- - the FDA's prohibitions against promoting products for unapproved or
"off-label" uses
In addition, Class II devices can be subject to additional special controls
that do not apply to Class I devices, such as performance standards, postmarket
surveillance, patient registries, and FDA guidelines. Failure to comply with
applicable requirements could result in FDA enforcement action, including, among
other things:
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- - fines
- - injunctions
- - civil penalties
- - refusal to grant pre-market clearances or approvals
- - recall or seizure of the products
- - withdrawal of marketing approvals
- - criminal prosecution recall or seizure of the products
Although the Company believes that any such enforcement action would not
have a material adverse effect on the Company's ability to market its products
other than as medical devices, any such enforcement action could have a material
adverse effect on its ability to market the MedModeler FDM system
The MedModeler FDM system may be subject in certain instances to regulation
by foreign regulatory authorities to the extent that the Company seeks to market
it outside the United States.
FINANCIAL INFORMATION ABOUT OPERATIONS IN THE UNITED STATES AND OTHER COUNTRIES
The information required by this item is incorporated by reference to the
Company's Financial Statements included elsewhere in this report. (See Part IV,
Item 14, Note 13.)
ITEM 2. PROPERTIES.
The Company's executive offices and production facilities presently occupy
approximately 87,156 square feet in two adjacent buildings in Eden Prairie,
Minnesota, near Minneapolis. The Company occupies a 27,756 square foot facility
under a lease that was to expire on July 31, 1999. In July 1998, the Company
extended this lease until July 31, 2002. In October 1996, the Company leased an
additional 59,400 square feet of office and production space in a building
adjacent to its original Eden Prairie premises under a lease expiring in
December 1999. In June 1999, the Company exercised its renewal option to lease
this facility through November 2001. Approximately 25% of the new premises will
be sublet until needed by the Company. The Minnesota facilities are used for
machine assembly and filament production, as well as sales, administration and
operations. The current monthly rent for the premises occupied by the Company
total approximately $35,000. The Company does not require a large space for
production because it assembles its devices from sub-assemblies manufactured by
outside vendors.
The Company opened two regional sales offices in 1997. In June 1997, the
Company entered into a three year lease to occupy 1,912 square feet of space in
Southfield, Michigan, a suburb of Detroit. This lease expires in May 2000, with
monthly rent of approximately $3,019. In September 1997, the Company entered
into a three-year lease to occupy 2,504 square feet of space in Ontario,
California. The lease expires in May 2000, with base monthly rent of
approximately $3,005. The Company expects to renew these leases at comparable
rates in 2000. The Company is also responsible for real estate taxes, insurance,
utilities, trash removal and maintenance expenses at all of these premises. In
November 1997, the Company's German subsidiary entered into a lease to occupy
4,360 square feet of space in Frankfurt, Germany. The lease expires in November
2001, with base monthly rent of approximately $6,100.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal or administrative
proceeding, and its property is not subject to any such proceeding, other than
actions arising in the ordinary course of the Company's business, which the
Company believes are not material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS.
No matter was submitted to a vote of Stockholders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year ended
December 31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's common stock is quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System National Market ("Nasdaq")
under the symbol SSYS and is traded on The Pacific Stock Exchange Incorporated
under the symbol SAS.
The following table sets forth the high and low closing bid prices of the
Company's common stock for each quarter from January 1, 1998 through the fiscal
year ended December 31, 1999.
High Low
---- ---
Fiscal Year Ended December 31, 1999 Bid Prices $
- ----------------------------------- ------------
January 1, 1999 - March 31, 1999 5.625 3.750
April 1, 1999 - June 30, 1999 4.688 3.313
July 1, 1999 - September 30, 1999 4.438 3.433
October 1, 1999 - December 31, 1999 9.25 3.313
Fiscal Year Ended December 31, 1998
January 1, 1998 - March 31, 1998 13.50 7.385
April 1, 1998 - June 30, 1998 12.125 7.875
July 1, 1998 - September 30, 1998 8.688 5.125
October 1, 1998 - December 31, 1998 7.438 4.50
There were approximately 153 stockholders of record of the Company's common
stock as of March 22, 2000.
DIVIDENDS
The Company has not paid or declared any cash dividends to date and does
not anticipate paying any in the foreseeable future. The Company intends to
retain earnings, if any, to support the growth of the Company's business.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of and for the five-year
period ended December 31, 1999, should be read in conjunction with the
Consolidated Financial Statements and related Notes for the year ended December
31, 1999, and the Management's Discussion and Analysis of Financial Condition
and Results of Operations.
YEARS ENDED DECEMBER 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA: (IN THOUSAND, EXCEPT PER SHARE AMOUNTS)
Sales 37,587 32,437 29,636 22,920 10,275
Gross Profit 24,675 21,347 19,940 15.031 6,368
Selling, general and administrative expenses 15,611 15,320 14,676 9,486 4,232
Research and development 6,583 5,944 5,055 3,374 1,996
Purchased in-process research and development -- 6,513 -- -- --
Operating income (loss) 2,481 (6,429) 209 2,172 141
Net income (loss) 2,144 (3,318) 515 3,503 371
Net income (loss) per basic share 0.37 (0.55) 0.09 0.67 0.09
Weighted average basic shares outstanding 5,776 6,072 5,726 5,191 4,023
Net income (loss) per diluted share 0.37 (0.55) 0.09 0.63 0.09
Weighted average diluted shares outstanding 5,779 6,072 6,016 5,585 4,046
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
BALANCE SHEET DATA (IN THOUSANDS)
Working Capital 19,567 18,655 26,357 20,192 12,640
Total Assets 37,113 41,190 38,984 31,463 19,895
Long term debt (less current portion) 318 193 136 95 183
Stockholders' equity 28,783 28,103 33,087 26,406 17,522
ITEM 7. 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
CAD workstation. Historically, the Company's growth has come from sales to a
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number of industries, including the 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 anticipates that in 2000 its
primary business strategy will focus 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 2000
for the commercialization of the technology it purchased in December 1998. The
Company expects to commercialize this technology in 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. This system offered
enhanced performance, reliability, and speed improvements over the original
Genisys. Shipments of the GenisysXs commenced in May 1999. In August 1999 the
Company introduced the FDM 3000. This system featured a build compartment
approximately 60% larger than the Company's FDM 2000 Benchtop system, allowing
customers to create significantly larger prototypes. In conjunction with the FDM
3000 system, the Company introduced WaterWorks. The patented WaterWorks process
allows for the easy removal of supports from a completed model by simply
immersing the part in a water-based solution. The support material is dissolved,
resulting in a finished prototype that eliminates most post-processing
requirements. The Company offered WaterWorks to users of its FDM 2000 systems
in the fourth quarter of 1999, and plans to offer it to FDM 8000 and Quantum
customers in 2000. The Company can give no assurances that it will successfully
introduce WaterWorks on these products.
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 sold more rapid prototyping systems than any of its
competitors over the last three-year period, and that it realized the second
highest revenues within the industry in 1999. It can give no assurances,
however, that these trends will continue. The Company's gross profit declined to
65.6% of sales in 1999 from 65.8% in 1998, despite shipping 15% more units. The
Company's gross profit can be significantly impacted by shifts in its product
mix and sales volume. In 1999 the Company continued its high level of spending
on research and development ("R&D") for both new products and sustaining
engineering. R&D expenditures increased to $6,583,120 in 1999 as compared with
$5,943,926 in 1998, although R&D as a percentage of sales declined to 17.5% of
revenue in 1999 as compared to 18.3% in 1998 (excluding the non-recurring
purchase of in-process engineering). While Selling, General and Administrative
("SG&A") expenses increased by only 1.9% in 1999 over 1998, SG&A expenses still
amounted to 41.5% of revenue. The Company's head count expanded from 194
employees and contractors at the end of 1998 to 200 employees and contractors at
the end of 1999. The majority of these additions were in the sales and
engineering departments. Future profitability of the Company will depend on 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 2000 as compared with 1999 as a result of higher
revenues and continued 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 10-15% 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 significant pricing sensitivity. These segments are more
interested in modeling envelope size, modeling material variety, throughput, and
part quality, which should allow growth to continue for higher priced rapid
prototyping systems addressing these needs.
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RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 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 operations.
For the years ended December 31,
1999 1998
Net sales 100.0% 100.0%
Cost of sales 34.4% 34.2%
Gross margin 65.6% 65.8%
Selling, general, and administrative expenses 41.5% 47.2%
Purchased in-process research and development 0.0% 20.1%
Research & development expense 17.5% 18.3%
Operating income (loss) 6.6% (19.8%)
Other income 1.1% 2.3%
Income (loss) before taxes 7.7% (17.6%)
Income taxes (benefit) 2.0% (7.3%)
Net income (loss) 5.7% (10.2%)
NET SALES
Net sales for the year ended December 31, 1999 were $37,586,938, compared
with sales of $32,437,198 for the year ended December 31, 1998. This represents
an increase of $5,149,740, or 15.9%. Sales of the Company's Benchtop systems,
augmented by the introduction of the FDM 3000 system introduced in August
1999, were particularly strong in 1999, and continued to account for the
majority of the Company's system sales. Quantum and GenisysXs system sales
were also up, following their respective 1998 and 1999 introductions. Consumable
and maintenance revenues also increased in the twelve months ended December 31,
1999 as compared with the same 1998 period. Maintenance and materials revenues
were enhanced by the larger installed base of systems, customer satisfaction
with ABS, WaterWorks, and other consumable offerings, and increased emphasis on
the sale of maintenance contracts.
The Company shipped 293 systems in 1999 compared with shipments of 262
systems in 1998. System sales in 1999 included sales of all systems, including
trade-in and refurbished systems. The Company ended 1999 with an order backlog
of approximately $4,000,000 compared with an order backlog of approximately
$3,500,000 at December 31, 1998. The 1999 year-end backlog is the highest in the
Company's history.
Domestic sales accounted for approximately 52% of total revenue in 1999,
which is down from 58% recorded in 1998. Europe accounted for approximately 18%
of total revenue in 1999, down from 19% of 1998 revenue. The Company's
Asia-Pacific region, which comprises Japan, China, Southeast Asia and India,
accounted for approximately 29.5% of total revenue, up from the 22% attained in
1998. Historically, the Company has derived a larger percentage of its revenues
from Europe as well as countries other than Japan in the Asia-Pacific region.
The Company believes that year 2000 sales into its Asia Pacific region will
remain strong, while sales into Europe are expected to improve as well. No
assurances, however, can be given that future sales and profitability will not
be adversely impacted by the economic conditions of these regions.
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GROSS PROFIT
Gross profit increased to $24,675,038, or 65.6% of sales, in the year ended
December 31, 1999, compared with $21,347,127, or 65.8% of sales, in the year
ended December 31, 1998, an improvement of $3,327,911, or 15.6%. Gross profit
increased due to higher sales volume and overhead expenses that increased at a
lesser rate than sales. Gross profit was negatively impacted by higher material
and direct labor cost of goods sold that resulted primarily from changes in the
Company's product mix.
OPERATING EXPENSES
SG&A expenses increased to $15,611,257 for the year ended December 31,
1999, from $15,319,918 for the year ended December 31, 1998. This represents an
increase of $291,339, or 1.9%, which was well below the 15.9% revenue growth
that the Company recorded. Personnel expenses, primarily in the Company's sales
and service organizations, variable commissions expense, and regional sales
office expenses accounted for much of the increase in 1999 as compared with
1998. As a percentage of sales, SG&A expenses declined to 41.5% in 1999 from
47.2% in 1998.
R&D expenses, excluding the non-recurring charge for the purchase of
in-process research and development, increased to $6,583,120 for the year ended
December 31, 1999 from $5,943,926 for the year ended December 31, 1998. The
increase in 1999 over 1998 amounted to $639,194, or 10.8%. Personnel expenses,
professional services, and expenses associated with the development of the
purchased in-process engineering technology accounted for much of the increase
in R&D expenses in 1999 as compared with 1998. The 1998 non-recurring pre-tax
charge for the purchase of in-process research and development amounted to
$6,512,665, and was expensed because of the risk associated with the purchased
research and development as well as the significant amount of engineering
resources required of the Company to commercialize this technology. As a
percentage of sales, excluding the purchase of in-process research and
development, R&D expenses declined to 17.5% in 1999 from 18.3% in 1998.
The Company's operating income for the year ended December 31, 1999
amounted to $2,480,661, or 6.6% of sales, compared with operating loss of
$6,429,382, or 19.8% of sales, for the year ended December 31, 1998. Without the
non-recurring charge, the operating income would have been $83,283, or .3% of
1998 sales.
OTHER INCOME
Other income and expense netted to $408,988 in 1999 compared with $736,037
in 1998. Interest income amounted to $452,855 in 1999 compared with $789,638 in
1998. This was due to a lower average balance of cash and marketable securities
in 1999. Interest expense declined by $9,734 to $43,867 in 1999 as the Company
paid down various capitalized leases.
NET INCOME (LOSS)
For the reasons cited above, net income for 1999 amounted to $2,143,649, or
5.7% of sales, compared with a net loss of $3,318,015, or (10.2%) of sales in
1998. This resulted in 1999 income per diluted common and common equivalent
share of $.37, compared with loss per common and common equivalent share of $.55
for the period ended December 31, 1998. Excluding the non-recurring charge for
the purchase of in-process research and development, the Company's pro forma net
income for the period ending December 31, 1998 would have been approximately
$533,000, which represented pro forma income per diluted common and common
equivalent share of $.09.
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RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
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.
For the years ended December 31,
1998 1997
Net sales 100.0% 100.0%
Cost of sales 34.2% 32.7%
Gross margin 65.8% 67.3%
Selling, general, and administrative expenses 47.2% 49.5%
Purchased in-process research and development 20.1% 0.0%
Research & development expense 18.3% 17.1%
Operating income (loss) (19.8%) .7%
Other income 2.3% 1.5%
Income (loss) before taxes (17.6%) 2.2%
Income taxes (benefit) (7.3%) .4%
Net income (loss) (10.2%) 1.7%
NET SALES
Net sales for the year ended December 31, 1998 were $32,437,198, compared
with net sales of $29,636,370 for the year ended December 31, 1997. This
represented an increase of $2,800,828, or 9.5%. Sales of the FDM Quantum were
strong throughout the year, following its introduction in the first quarter of
1998. The Company's FDM Benchtop systems, including refurbished and upgraded
systems, continued to account for a majority of the Company's revenue in the
year ended December 31, 1998. Genisys systems, consumable, and maintenance
revenue increased significantly in the twelve months ended December 31, 1998 as
compared with the comparable 1997 period. 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.
The Company booked 270 orders for new systems and sold 262 systems in 1998.
System sales in 1998 included gross sales of all systems, including trade-in and
upgrade systems. The Company ended 1998 with an order backlog of approximately
$3,500,000 compared with an order backlog of approximately $1,000,000 at
December 31,1997.
Domestic sales accounted for approximately 57% of total revenue, which
equaled the 57% recorded in 1997. In the United States, the eastern and central
regions recorded the most revenue, while the western region was weak. Europe
accounted for approximately 19% of total revenue in 1998, down from 20% of 1997
revenue. The Company's Asia-Pacific region, which comprises Japan, China,
Southeast Asia and India, accounted for approximately 22% of total revenue, up
from the 20% attained in 1997.
GROSS PROFIT
Gross profit increased to $21,347,127, or 65.8% of sales, in the year ended
December 31, 1998, compared with $19,939,905, or 67.3% of sales, in the year
ended December 31, 1997, an improvement of $1,407,222, or 7.1%. Gross profit
increased due to higher sales volume, with a significant contribution from sales
of the Company's Quantum systems. Gross profit was negatively impacted by higher
material cost of goods sold that primarily resulted from changes in the
Company's product mix.
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OPERATING EXPENSES
SG&A expenses increased to $15,319,918 for the year ended December 31,
1998, from $14,676,175 for the year ended December 31, 1997. This represented an
increase of $643,743, or 4.4%. Personnel expenses, primarily in the Company's
sales organization, and regional office expenses accounted for much of the
increase in 1998 as compared with 1997. As a percentage of sales, SG&A expenses
declined to 47.2% in 1998 from 49.5% in 1997.
R&D expenses, excluding the non-recurring charge for the purchase of
in-process research and development, increased to $5,943,926 for the year ended
December 31, 1998 from $5,054,767 for the year ended December 31, 1997. The
increase in 1998 over 1997 amounted to $889,159, or 17.6%. Payroll related
expenses, materials, and professional services accounted for much of the
increase in R&D expenses in 1998 as compared with 1997. The non-recurring
pre-tax charge for the purchase of in-process research and development amounted
to $6,512,665. As a percentage of sales, excluding the purchase of in-process
research and development, R&D expenses increased to 18.3% in 1998 from 17.1% in
1997.
The Company's operating loss for the year ended December 31, 1998 amounted
to $6,429,382, or 19.8% of sales, compared with operating income of $208,963, or
.7% of sales, for the year ended December 31, 1997. Without the non-recurring
charge, operating income would have been $83,283, or .3% of sales.
OTHER INCOME
Other income and expense netted to $736,037 in 1998 compared with $435,293
in 1997. Interest income amounted to $789,638, an increase of $292,825 compared
with 1997. This was due to a higher average balance of cash and marketable
securities. Interest expense declined by $7,919 to $53,601 in 1997 as the
Company paid off various capitalized leases.
NET INCOME (LOSS)
The net loss for 1998 amounted to $3,318,015 compared with net income of
$514,833 in 1997. This resulted in a loss per common and common equivalent share
of $.55, compared with income per diluted common and common equivalent share of
$.09 in the period ended December 31, 1997. Excluding the non-recurring charge
for the purchase of in-process research and development, the Company's net
income for the period ending December 31, 1998 would have been approximately
$533,000, which represented pro forma income per diluted common and common
equivalent share of $.09.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities during 1999 provided cash of $2,694,397, primarily
reflecting the Company's net income of $2,143,649 and an increase to unearned
maintenance revenues of $1,276,759. Unearned maintenance revenues increased as a
result of renewed selling emphasis and larger installed base of customers.
Increases to the Company's accounts receivable and inventories used cash of
$1,947,341 and $1,611,677, respectively. The increase to accounts receivable was
largely due to higher sales volumes and heavy end-of-year sales. Inventories
increased due to higher levels of replacement parts required under maintenance
agreements, the expanded number of products, and increased revenue. Operating
activities during 1998 provided cash of $5,736,609, primarily reflecting
decreases in accounts receivable of $1,797,218 and inventory of $456,542,
combined with increases in the Company's accounts payable and other current
liabilities of $519,624. These changes resulted from a general tightening of
credit terms and increased focus on working capital management. In addition, the
Company's core business, excluding the non-recurring charge for the purchase of
in-process research and development, was profitable in 1998, resulting in a
profit of approximately $533,000. The Company used cash of $9,769,231 in its
1999 investing activities, including $6,464,709 for the purchase of in-process
R&D, $1,330,761 for the purchase of intangible assets, and $628,290 for the
acquisition of fixed assets. The Company also used cash of $1,427,971 for the
net acquisition of marketable securities. In 1998, the Company used $1,691,536
of cash in its investing activities, including $1,190,567 used for the
acquisition of
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property and equipment, and $341,980 for payments for intangible assets. The
Company used $151,089 for net purchases of marketable securities in the same
1998 period. In 1999, financing activities used $1,646,781 of cash, including
$1,465,315 for the repurchase of treasury stock and $183,752 for payments of
obligations under capital leases. In 1998, the Company's financing activities
used net cash of $1,891,103, which included $1,000,000 for the repurchase of
warrants and $781,927 for the purchase of treasury stock under its stock buyback
program. The net decrease in cash, for the reasons cited above, amounted to
$8,711,480 in 1999 compared with a net increase in cash of $2,127,607 for the
year ended December 31, 1998 The Company's ending cash and cash equivalents
balances as of December 31, 1999 and 1998 were $2,532,359 and $11,243,839,
respectively.
At December 31, 1999, the Company's cash, cash equivalents, and marketable
securities balances totaled $8,532,979. This cash will be used for working
capital purposes, for improvement to facilities, for new product development,
for acquisition of production equipment and tooling, for computers, for
increased selling and marketing activities, and for engineering costs required
to develop and commercialize the in-process research and development
acquisition. Additionally, the Company may continue its common stock buyback
program. While the Company believes that the primary source of liquidity in 2000
will be derived from current cash balances and cash flows from operations, it
has a line of credit for the lesser of $4,000,000 or a defined borrowing base.
Management believes that the Company's revenue from operations, its current cash
and cash equivalents balance, and the proceeds from the sale of short-term
marketable securities should provide sufficient cash resources to finance its
operations for at least 24 months.
Prior to the last two years, the Company historically had 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, 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 December 31, 1999, the Company had gross accounts receivable of
$12,177,090, less an allowance of $420,833 for returns and doubtful accounts.
Historically, the Company's bad debt expense has been minimal. However, at
December 31, 1999, large balances were concentrated with certain international
distributors. Default by one or more of these distributors would result in a
significant charge against the Company's current reported earnings. While the
Company can give no assurances, it believes that most, if not all, of the
accounts receivable balances will ultimately be collected.
The Company's total current assets amounted to $27,579,712 at December 31,
1999, the majority of which consisted of cash, cash equivalents, marketable
securities, inventories and accounts receivable. Total current liabilities
amounted to $8,012,259. The Company's debt is minimal, consisting primarily of
principal payments due under capital leases of $548,241. The Company estimates
that it will spend approximately $1,400,000 in 2000 for facility improvements,
production and R&D equipment, computers and integrated software, and tooling. As
of December 31, 1999, material commitments for inventory purchases from selected
vendors for the ensuing twelve-month period ending December 31, 2000 amount to
approximately $3,400,000. The Company intends to finance these purchases from
existing funds or from cash flows from operations.
INFLATION
Management believes that inflation has not had a material effect on the
Company's operations or on its financial condition during the three most recent
fiscal years.
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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.
YEAR 2000 ISSUES
As of March 2000 the Company did not experience any material adverse
effects related to the Year 2000 issue. The Company does not anticipate any
material adverse effects on the results of operations or its financial condition
in the future.
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 offerings, (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 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.
-20-
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information that appears following Item 14 of this report and is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company did not have any changes in or disagreements with its
accountants on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated herein by reference to the Company's Definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders scheduled
to be held May 11, 2000.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference to the Company's Definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders scheduled
to be held May 11, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated herein by reference to the Company's Definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders scheduled
to be held May 11, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference to the Company's Definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders scheduled
to be held May 11, 2000.
-21-
23
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) DOCUMENTS
1. FINANCIAL STATEMENTS -
Independent Auditors Report........................................................................... F-1
Consolidated Balance Sheets December 31, 1999 and 1998................................................ F-2
Consolidated Statements of Operations Years ended December 31, 1999, 1998 and 1997.................... F-3
Consolidated Statements of Stockholders' Equity Years ended December 31, 1999, 1998 and 1997.......... F-4
Consolidated Statements of Cash Flows Years ended December 31, 1999, 1998 and 1997.................... F-5
Notes to Consolidated Financial Statements............................................................ F-7 to F-19
2. FINANCIAL STATEMENT SCHEDULE -
Schedule II - Valuation and Qualifying Accounts....................................................... F-20
Notes
All other schedules called for under Regulation S-X are not submitted because
they are not applicable or not required, or because the required information is
included in the financial statements or notes thereto.
Separate financial statements of the Registrant have been omitted because the
Registrant is primarily an operating company. All subsidiaries included in the
consolidated financial statements are majority owned, and none of the
subsidiaries have indebtedness which is not guaranteed by the Registrant.
3. EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Restated Certificate of incorporation of the Company. (3)
3.2 Amendment to Certificate of Incorporation of the Company. (6)
3.3 By-Laws of the Company. (1)
4.1 Agent's Warrant issued to R.J. Steichen & Company dated November 12, 1993. (1)
4.2 Agent's Warrant issued to R.J. Steichen & Company dated December 13, 1993. (1)
4.3 Form of Common Stock purchase warrants issued by the Company dated as of November 12,
1993 and December 13, 1993. (1)
4.4 Form of Common Stock purchase warrant issued by the Company in its August 1995 private
placement (2).
4.5 Form of 3-year Common Stock purchase warrants issued by the Company in its November
1995 offering under Regulation D and Regulation S. (5)
4.6 Form of 3-month Common Stock purchase warrants issued by the Company in its November
1995 offering under Regulation D and Regulation S. (5)
4.7 Form of Placement Agent's warrant issued by the Company in its November 1995 offering
under Regulation D and Regulation S. (5)
4.8 Form of warrant issued to Sunrise Securities Corp. by the Company in connection with
its November 1995 offering under Regulation D and Regulation S. (5)
10.1 Non-Competition Agreement between the Company and S. Scott Crump, dated October 15,
1990. (1)
10.2 Non-Competition Agreement between the Company and S. Lisa Crump, dated October 15,
1990.(1)
-22-
24
10.3 Employee Confidentiality Agreement between the Company and S. Scott Crump, dated
October 15, 1990. (1)
10.4 Employee Confidentiality Agreement between the Company and Lisa Crump, dated October
15, 1990.(1)
10.5 Stratasys, Inc. Employee Stock Option Plan #1 (1)
10.6 Amended and Restated Stratasys, Inc. 1994 Stock Plan. (3)
10.7 Second Amended and Restated Stratasys, Inc. 1994-2 Stock Plan. (8)
10.8 Stratasys, Inc. 1998 Incentive Stock Option Plan. (10)
10.9 Asset Purchase Agreement between the Company and IBM dated January 1, 1995. (4)
10.10 Stratasys, Inc. 2000 Incentive Stock Option Plan (13)
10.11 Equipment Lease Agreement between the Company and IBM dated January 1, 1995. (4)
10.12 Assignment, dated October 23, 1989, from S. Scott Crump to the Company with respect to
a patent application for an apparatus and method for creating three-dimensional
objects. (7)
10.13 Assignment, dated June 5, 1992, from S. Scott Crump to the Company with respect to a
patent application for a modeling apparatus for three dimensional objects. (7)
10.14 Assignment, dated June 1, 1994, from S. Scott Crump, James W. Comb, William R.
Priedeman, Jr., and Robert Zinniel to the Company with respect to a patent application
for a process and apparatus of support removal for three-dimensional modeling. (7)
10.15 Lease between the Company and Welsh Edenvale Partners '86, dated October 9, 1992 (1)
10.16 Amendment #4 to Lease between the Company and Welsh Edenvale Partners '86, dated
October 9, 1992, between the Company and Carpenter Land Company LLP, dated July 27,
1998.
10.17 Lease between the Company and Richard A. Burke, dated October 14, 1996. (9)
10.18 Warrant Purchase Agreement by and among the Company and certain holder's of the
Company's Warrants dated September 30, 1998. (11)
10.19 Technology Sale and Assignment Agreement, between the Company and SEK Technologies
LLC, dated as of December 21, 1998. (12)
10.21 User Agreement, between the Company and SEK Technologies LLC, dated as of August 21,
1997.(12)
10.22 Option Agreement, between the Company and SEK Technologies LLC, dated August 21, 1997.
(12)
10.23 Form of Registration Rights Agreement, between the Company and holders of Investment
Units in SEK Technologies LLC, dated as of January 4, 1999. (12)
21.1 Subsidiaries of the Company.
23.1 Consent of Rothstein, Kass & Company, P.C.
27.1 Financial Data Schedule.
(1) Incorporated by reference from the Company's Registration Statement on Form SB-2 (File
No. 33-83638-C) filed September 2, 1994
(2) Incorporated by reference from the Company's Form 8-K, dated August 24, 1995.
(3) Incorporated by reference from the Company's Form 10-KSB for the year ended December
31, 1994.
(4) Incorporated by reference from the Company's Form 8-K, Amendment No.2, dated January
1, 1995.
(5) Incorporated by reference from the Company's Registration Statement on Form SB-2 (File
No. 33-99108) filed November 8, 1995.
(6) Incorporated by reference from the Company's Form 10-QSB for the nine months ended
September 30, 1995.
(7) Incorporated by reference from Amendment No. I to the Company's Registration Statement
on Form SB-2 (File No. 33-99108) filed December 20, 1995.
-23-
25
(8) Incorporated by reference from the Company's definitive Proxy Statement on Schedule 14A
with respect to the Company's 1997 Annual Meeting of Stockholders.
(9) Incorporated by reference from the Company's Form 10-KSB for the year ended December 31, 1996.
(10) Incorporated by reference from the Company's definitive Proxy Statement on Schedule 14A
with respect to the Company's 1998 Annual Meeting of Stockholders.
(11) Incorporated by reference from the Company's Form 8-K filed on October 16, 1998.
(12) Incorporated by reference from the Company's Form 8-K filed January 15, 1999.
(13) Incorporated by reference from the Company's Registration Statement on Form S-8 (File
No. 333-32782) filed March 17, 2000.
(b) REPORTS ON FORM 8-K
None.
-24-
26
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 29, 2000 STRATASYS, INC.
By: /s/ S. Scott Crump
S. Scott Crump, President
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
/s/ S. Scott Crump Chairman of the Board of Directors, March 29, 2000
S. Scott Crump President, Chief Executive Officer,
Treasurer, (Principal Executive Officer)
/s/ Thomas W. Stenoien Chief Financial Officer March 29, 2000
Thomas W. Stenoien (Principal Financial and Accounting Officer)
/s/ Ralph E. Crump Director March 29, 2000
Ralph E. Crump
/s/ Clifford H. Schwieter Director March 29, 2000
Clifford H. Schwieter
/s/ Arnold J. Wasserman Director March 29, 2000
Arnold J. Wasserman
/s/ Gregory L. Wilson Director March 29, 2000
Gregory L. Wilson
/s/ Cameron Truesdell Director March 29, 2000
Cameron Truesdell
27
STRATASYS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1999 AND 1998
28
STRATASYS, INC. AND SUBSIDIARIES
CONTENTS
INDEPENDENT AUDITORS REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5 - F-6
Notes to Financial Statements F-7 - F-19
Valuation and Qualifying Accounts and Reserves F-20
29
INDEPENDENT AUDITORS REPORT
Board of Directors
Stratasys, Inc.
We have audited the accompanying consolidated balance sheets of Stratasys, Inc.
and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations stockholders' equity, and cash flows and financial
statement schedule for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Stratasys, Inc. and
Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
Also in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
/s/ Rothstein, Kass & Co., P.C.
Roseland, New Jersey
January 29, 2000
F-1
30
STRATASYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 1998
ASSETS
Current assets
Cash and cash equivalents $ 2,532,359 $ 11,243,839
Marketable securities 6,000,620 4,593,910
Accounts receivable, less allowance for returns and
doubtful accounts of $420,833 in 1999 and $409,341
in 1998 11,756,257 9,838,836
Inventories 6,647,265 5,035,588
Prepaid expenses 429,211 593,363
Deferred income taxes 214,000 243,000
------------ ------------
Total current assets 27,579,712 31,548,536
------------ ------------
Property and equipment, net 3,235,362 3,601,829
------------ ------------
Other assets
Intangible assets, net 3,409,708 2,788,769
Deferred income taxes 2,507,000 3,072,000
Other 381,534 179,042
------------ ------------
6,298,242 6,039,811
------------ ------------
$ 37,113,316 $ 41,190,176
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Obligations under capital leases, current portion $ 230,229 $ 177,669
Purchased in-process research and development payable 0 6,464,709
Accounts payable and other current liabilities 3,855,447 3,601,570
Unearned maintenance revenues 3,926,583 2,649,824
------------ ------------
Total current liabilities 8,012,259 12,893,772
------------ ------------
Obligations under capital leases, less current portion 318,012 193,327
============ ============
Commitments
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 (1,703,880) (3,847,529)
Accumulated other comprehensive loss (39,608) (38,956)
Less cost of treasury stock, 542,600 and 137,300
shares in 1999 and 1998, respectively (2,247,242) (781,927)
------------ ------------
Total stockholders' equity 28,783,045 28,103,077
------------ ------------
$ 37,113,316 $ 41,190,176
============ ============
See accompanying notes to consolidated financial statements. F-2
31
STRATASYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1999 1998 1997
OPERATIONS
Sales $ 37,586,938 $ 32,437,198 $ 29,636,370
Cost of sales 12,911,900 11,090,071 9,696,465
------------ ------------ ------------
Gross profit 24,675,038 21,347,127 19,939,905
Costs and expenses
Research and development 6,583,120 5,943,926 5,054,767
Purchased in-process research and development 6,512,665
Selling, general and administrative 15,611,257 15,319,918 14,676,175
------------ ------------ ------------
22,194,377 27,776,509 19,730,942
------------ ------------ ------------
Operating income (loss) 2,480,661 (6,429,382) 208,963
------------ ------------ ------------
Other income (expense)
Interest and other income 452,855 789,638 496,813
Interest expense (43,867) (53,601) (61,520)
------------ ------------ ------------
408,988 736,037 435,293
------------ ------------ ------------
Income (loss) before income taxes (benefit) 2,889,649 (5,693,345) 644,256
Income taxes (benefit) 746,000 (2,375,330) 129,423
------------ ------------ ------------
Net income (loss) $ 2,143,649 $ (3,318,015) $ 514,833
============ ============ ============
Income (loss) per common and common equivalent share
Basic and diluted $ 0.37 $ (0.55) $ 0.09
============ ============ ============
Weighted average number of common and
common equivalent shares outstanding
Basic 5,775,945 6,071,787 5,726,339
============ ============ ============
Diluted 5,779,340 6,071,787 6,016,381
============ ============ ============
See accompanying notes to consolidated financial statements. F-3
32
STRATASYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
CAPITAL IN COMPREHENSIVE
COMMON STOCK EXCESS OF INCOME/
SHARES AMOUNT PAR VALUE (LOSS)
Balances, January 1, 1997 5,517,309 $ 55,173 $ 27,394,902 $
Sale of common stock, less related expenses 355,045 3,551 4,976,462
Exercise of stock options and warrants 207,305 2,073 1,184,720
Net income 514,833
Other comprehensive income
Cumulative translation adjustment --
-----------
Total comprehensive income $ 514,833
===========
--------- ------------ ------------
Balances, December 31, 1997 6,079,659 60,797 33,556,084
Exercise of stock options 20,865 208 68,640
Purchase of warrants (1,000,000)
Warrants issued in connection with
purchased research and development 85,760
Net loss (3,318,015)
Other comprehensive income (loss)
Cumulative translation adjustment (38,956)
-----------
Total comprehensive loss $(3,356,971)
===========
Purchase of 137,300 shares of treasury stock
--------- ------------ ------------
Balances, December 31, 1998 6,100,524 61,005 32,710,484
Exercise of stock options 1,437 15 2,271
Net income 2,143,649
Other comprehensive income (loss)
Cumulative translation adjustment (652)
-----------
Total comprehensive loss $2,142,997
===========
Purchase of 405,300 shares of treasury stock
--------- ------------ ------------
Balances, December 31, 1999 6,101,961 $ 61,020 $ 32,712,755
========= ============ ============
Accumulated
Other
Accumulated Treasury Comprehensive
Deficit Stock Loss Total
Balances, January 1, 1997 $ (1,044,347) $ 26,405,728
Sale of common stock, less related expenses 4,980,013
Exercise of stock options and warrants 1,186,793
Net income 514,833 514,833
Other comprehensive income
Cumulative translation adjustment
Total comprehensive income
------------ ----------- ----------- -----------
Balances, December 31, 1997 (529,514) -- -- 33,087,367
Exercise of stock options 68,848
Purchase of warrants (1,000,000)
Warrants issued in connection with
purchased research and development 85,760
Net loss (3,318,015) (3,318,015)
Other comprehensive income (loss)
Cumulative translation adjustment (38,956) (38,956)
Total comprehensive loss
------------ ----------- ----------- -----------
Purchase of 137,300 shares of treasury stock (781,927) (781,927)
Balances, December 31, 1998 (3,847,529) (781,927) (38,956) 28,103,077
Exercise of stock options 2,286
Net income 2,143,649 2,143,649
Other comprehensive income (loss)
Cumulative translation adjustment (652) (652)
Total comprehensive loss
Purchase of 405,300 shares of treasury stock (1,465,315) (1,465,315)
------------ ------------ ----------- -----------
Balances, December 31, 1999 $ (1,703,880) $ (2,247,242) $ (39,608) $ 28,783,045
============ ============ =========== ===========
See accompanying notes to consolidated financial statements. F-4
33
STRATASYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 1998 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,143,649 $ (3,318,015) $ 514,833
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Bad debt expense 29,920 30,000 204,697
Deferred income taxes 594,000 (2,388,000) (53,000)
Depreciation 1,265,396 1,341,045 1,019,973
Amortization 638,643 929,249 917,454
Purchased in-process research and development 6,512,665
Loss on disposal of assets 77,474
Increase (decrease) in cash attributable to changes
in assets and liabilities
Accounts receivable (1,947,341) 1,797,218 (1,263,596)
Inventories (1,611,677) 456,542 (2,843,140)
Prepaid expenses 166,859 (367,273) 117,403
Other assets (206,894)
Accounts payable and other current liabilities 267,609 519,624 (556,213)
Unearned maintenance revenues 1,276,759 223,554 1,344,226
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,694,397 5,736,609 (597,363)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 23,500,000 40,090,164 35,166,222
Acquisition of marketable securities (24,927,971) (40,241,253) (33,034,695)
Acquisition of property and equipment (628,290) (1,190,567) (2,048,884)
Proceeds from sale of property and equipment 82,500
Purchased in-process research and development (6,464,709)
Payments for intangible assets (1,330,761) (341,980) (173,635)
Payments for other assets, net (7,900) (94,057)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (9,769,231) (1,691,536) (185,049)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of obligations under capital leases (183,752) (178,024) (233,130)
Repurchase of warrants (1,000,000)
Net proceeds from sale of common stock 2,286 68,848 6,166,806
Purchase of treasury stock (1,465,315) (781,927)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,646,781) (1,891,103) 5,933,676
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 10,135 (26,363) --
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,711,480) 2,127,607 5,151,264
CASH AND CASH EQUIVALENTS, beginning of year 11,243,839 9,116,232 3,964,968
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 2,532,359 $ 11,243,839 $ 9,116,232
============ ============ ============
See accompanying notes to consolidated financial statements. F-5
34
STRATASYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ------------------------ ---- ---- ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, cash paid during the year for:
Interest $ 43,867 $ 53,601 $ 61,520
======== ======== ========
Income taxes $ -- $437,916 $202,495
======== ======== ========
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND
FINANCING ACTIVITIES, machinery and equipment
acquired under capital lease obligations $369,997 $268,569 $232,189
======== ======== ========
See accompanying notes to consolidated financial statements. F-6
35
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Nature of Operations
Stratasys, Inc. and Subsidiaries
(collectively the "Company") develops,
manufactures and markets a family of
rapid prototyping systems (RPS) and
devices that permit engineers and
designers to create physical models and
prototypes, made of various materials,
utilizing three dimensional Computer
Aided Design ("3D CAD") files at a CAD
workstation. The Company sells these
devices and the related consumable
materials worldwide.
Principles of Consolidation
The consolidated financial statements
include the accounts of Stratasys, Inc.
and its wholly owned subsidiaries. All
material intercompany accounts and
transactions have been eliminated in
consolidation.
Fair Value of Financial Instruments
The fair value of the Company's assets
and liabilities, which qualify as
financial instruments under Statement of
Financial Accounting Standards (SFAS)
No. 107, "Disclosures about Fair Value
of Financial Instruments," approximates
the carrying amounts presented in the
consolidated balance sheet.
Cash Equivalents
The Company considers all highly-liquid
debt instruments purchased with an
original maturity of three months or
less to be cash equivalents. Cash
equivalents include U.S. Treasury bills
and a money market account.
Marketable Securities
The Company records its marketable
securities in accordance with SFAS No.
115, "Accounting for Certain Investments
in Debt and Equity Securities."
Marketable securities have been
categorized as available for sale and,
as a result, are stated at fair value,
which approximates amortized cost at
December 31, 1999 and 1998. The
Company's marketable securities consist
of U.S. Treasury bills that mature
within one year. There were no realized
gains or losses on marketable securities
in any of the three years ended December
31, 1999.
F-7
36
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED) Inventories
Inventories are stated at the lower of
cost, on the first in, first out method,
or market. Inventory costs are comprised
of material, direct labor and overhead.
Impairment of Long-Lived Assets
The Company periodically assesses the
recoverability of the carrying amounts
of long-lived assets, including
intangible assets. A loss is recognized
when expected undiscounted future cash
flows are less than the carrying amount
of the asset. The impairment loss is the
difference by which the carrying amount
of the asset exceeds its fair value.
Property and Equipment
Property and equipment is stated at
cost. Depreciation and amortization is
computed using the straight line method
over the estimated useful lives of the
assets ranging from 3-5 years.
Intangible Assets
Intangible assets are being amortized
over their estimated useful or economic
lives using the straight line method as
follows:
RPS Technology 11 years
Capitalized software
development costs 3 years
Purchased software 3 years
Patents 10 years
Copyrights and licensed
internal code 5 years
The costs of software development,
including significant product
enhancements, incurred subsequent to
establishing technological feasibility
have been capitalized in accordance with
SFAS No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased
or Otherwise Marketed." Costs incurred
prior to establishment of technological
feasibility are charged to research and
development expense.
F-8
37
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED) Unearned Maintenance Revenues
Maintenance revenues are amortized over
the term of the related maintenance
contracts, typically one to two years.
Revenue Recognition
The Company recognizes revenues from the
sale of RPS machines when shipped. The
Company establishes allowances for
estimated returns at the time of
shipment.
Service revenues, excluding maintenance
contracts, are recognized at the time
the services are performed.
Advertising
Advertising costs are charged to
operations as incurred and were
approximately $652,000, $603,000 and
$824,000 for 1999, 1998 and 1997,
respectively.
Research and Development Costs
Expenditures for research, development
and engineering of products and
manufacturing processes are expensed as
incurred.
Income Taxes
The Company complies with SFAS No. 109,
"Accounting for Income Taxes," which
requires an asset and liability approach
to financial reporting of income taxes.
Deferred income tax assets and
liabilities are computed for differences
between the financial statement and tax
bases of assets and liabilities that
will result in taxable or deductible
amounts in the future, based on enacted
tax laws and rates applicable to the
periods in which the differences are
expected to affect taxable income.
Valuation allowances are established,
when necessary, to reduce the deferred
income tax assets to the amount expected
to be realized.
F-9
38
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED) Income (Loss) Per Common Share
The Company complies with SFAS No. 128,
"Earnings Per Share". SFAS No. 128
requires dual presentation of basic and
diluted income (loss) per share for all
periods presented. Basic income (loss)
per share excludes dilution and is
computed by dividing income available to
common stockholders by the weighted
average number of common shares
outstanding for the period. Diluted
income per share reflects the potential
dilution that could occur if securities
or other contracts to issue common stock
were exercised or converted into common
stock or resulted in the issuance of
common stock that then shared in the
income of the Company. The difference
between the number of shares used to
compute basic income (loss) per share
and diluted income (loss) per share
relates to additional shares to be
issued (3,395 in 1999, nil in 1998 due
to their antidilutive effect and 290,042
in 1997) upon the assumed exercise of
stock options and warrants, net of
shares hypothetically repurchased at the
average market price with the proceeds
of exercise.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted
accounting principles requires
management to make estimates and
assumptions that affect the reported
amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
Comprehensive Income (Loss)
Effective December 31, 1998, the Company
adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130
establishes new rules for the reporting
and display of comprehensive income
(loss) and its components; however, the
adoption of this Statement has no impact
on the Company's net income (loss) or
stockholders' equity. SFAS No. 130
requires the Company's change in the
foreign currency translation adjustment
to be included in other comprehensive
income (loss). The prior years'
consolidated financial statements have
been reclassified to conform to these
requirements.
F-10
39
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTS RECEIVABLE At December 31, 1999 and 1998, accounts
receivable included balances due from
foreign entities of approximately
$7,205,000 and $5,315,000, respectively.
3. INVENTORIES Inventories consist of the following at
December 31:
1999 1998
Finished goods $3,715,292 $ 3,058,539
Work in process 50,103 145,108
Raw materials 2,881,870 1,831,941
------------------------
$6,647,265 $ 5,035,588
========================
4. PROPERTY AND EQUIPMENT Property and equipment consists of the
following at December 31:
1999 1998
Machinery and equipment $2,064,174 $1,735,854
Computer equipment and
software 2,653,246 2,305,424
Office equipment 722,599 680,449
Leasehold improvements 1,096,479 1,060,281
Equipment under capital leases 847,016 784,908
-----------------------
7,383,514 6,566,916
Accumulated depreciation
and amortization (including $237,676
in 1999 and $313,003 in 1998
under capital leases) 4,148,152 2,965,087
-----------------------
$3,235,362 $3,601,829
=======================
F-11
40
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INTANGIBLE ASSETS Intangible assets consist of the following
at December 31:
1999 1998
RPS Technology $2,558,532 $2,558,532
Capitalized software
development costs 2,652,867 2,251,782
Purchased software 300,000
Patents 1,137,687 595,818
Copyrights and licensed
internal code 56,856
Other 16,344 17,488
-----------------------
6,665,430 5,480,476
Accumulated amortization 3,255,722 2,691,707
-----------------------
$3,409,708 $2,788,769
=======================
For the years ended December 31, 1999, 1998
and 1997, amortization of computer software
development costs charged to operations was
$305,263, $646,296 and $632,219,
respectively.
Included in research and development expense
for the years ended December 31, 1999, 1998
and 1997 are computer software development
expenditures of $1,463,692, $1,364,100 and
$1,625,188, respectively.
6. PURCHASED IN-PROCESS In December 1998, the Company purchased
RESEARCH AND DEVELOPMENT substantially all of the assets of a private
research and development company including
mechanical drawings, data tapes, code,
schematics and fixed assets. The purchase
price was approximately $6,550,000, of which
approximately $6,464,000 was paid in cash in
January 1999 and the balance through the
issuance of warrants to purchase 128,000
shares of common stock of the Company at
$13.88 per share.
The Company expects the rapid prototyping
technology purchased to significantly
enhance its product mix and capabilities.
Products derived from this new technology
are anticipated to reach the market place
during 2000. At the time of purchase,
substantial development remained in order to
create a functional and reliable machine.
There were also many risks involving the
various areas of the technology, as well as
the total integration of the various
systems. Accordingly, approximately
$6,512,000 of the purchase price was
expensed as research and development
expense.
F-12
41
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. CREDIT LINE The Company has an available line of credit
from a financial institution for the lesser
of $4,000,000 or a defined borrowing base.
The credit line bears interest at defined
rates based upon two different indexes and
expires in June 2000. No amounts were
outstanding at December 31, 1999 and 1998.
8. ACCOUNTS PAYABLE AND
OTHER CURRENT
LIABILITIES Accounts payable and other current
liabilities consist of the following at
December 31:
1999 1998
Trade $1,465,514 $1,626,253
Compensation and related
benefits 1,902,664 1,363,159
Reserve for warranty expenses 157,129 127,638
Other 330,140 484,520
-------------------------
$3,855,447 $3,601,570
=========================
9. OBLIGATIONS UNDER
CAPITAL LEASES Aggregate minimum lease payments for
obligations under capital leases in the
years subsequent to December 31, 1999 are as
follows:
YEAR ENDING DECEMBER 31
2000 $ 289,008
2001 218,380
2002 139,898
----------
Total minimum lease payments 647,286
Less amount representing interest 99,045
----------
Present value of minimum lease payments 548,241
Less current portion 230,229
----------
$ 318,012
==========
F-13
42
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES The components of the Company's deferred tax assets
(liabilities) are as follows:
1999 1998
Net operating loss
carryforwards $ 656,000 $ 1,905,000
Depreciation (4,000) (71,000)
Amortization 26,000 21,000
Allowance for doubtful accounts 111,000 104,000
Reserve for warranty expenses 58,000 91,000
Reserve for sales returns, net 45,000 48,000
Federal minimum tax credit
carryforwards 154,000 74,000
Research and development tax
credit carryforwards 1,675,000 1,143,000
--------------------------
$ 2,721,000 $ 3,315,000
==========================
At December 31, 1999, the Company had federal and
state net operating loss carryforwards of
approximately $1,800,000, which can be utilized
against future taxable income and expire in various
years through 2018.
At December 31, 1999, the Company had research and
development tax credit carryforwards of $1,675,000,
which can be utilized against future federal income
taxes and expire in various years through 2019.
Income (loss) before income taxes consists of the
following:
1999 1998 1997
United States $ 2,682,310 $(5,791,880) $ 814,256
Foreign 207,339 98,535 (170,000)
------------------------------------------
$ 2,889,649 $(5,693,345) $ 644,256
=========================================
F-14
43
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (CONTINUED)
The components of income taxes (benefit) for
the years ended December 31, 1999, 1998 and
1997 are as follows:
1999 1998 1997
FEDERAL
Current $ 80,000 $ 47,011 $ 175,423
Deferred 463,000 (2,231,000) (102,000)
------------------------------------------
543,000 (2,183,989) 73,423
==========================================
STATE
Current (34,341) 7,000
Deferred 131,000 (177,000) 49,000
------------------------------------------
131,000 (211,341) 56,000
==========================================
FOREIGN
Current 72,000 20,000 --
------------------------------------------
$ 746,000 $(2,375,330) $ 129,423
==========================================
A reconciliation of the statutory federal income tax
rate and the effective tax rate follows:
1999 1998 1997
Federal statutory rate 34.0% (34.0)% 34.0%
Foreign sales corporation
exclusion (2.7)
Earnings of subsidiaries taxed
at other than U.S. statutory rate 9.0
State income taxes, net of
federal effect 2.9 (1.9) 0.7
Permanent differences and other 1.0 (0.3) 3.4
Utilization of research and
development tax credit (12.1) (5.5) (24.4)
-------------------------------------
Effective income tax rate 25.8% (41.7)% 20.0%
=====================================
F-15
44
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND
CONTINGENCIES The Company leases its facilities under leases which
expire through 2002.
Aggregate future minimum annual rental payments in
the years subsequent to December 31, 1999 are as
follows:
YEAR ENDING DECEMBER 31,
2000 $ 599,909
2001 528,362
2002 163,800
----------
$1,292,071
==========
Rent expense for the years ended December 31, 1999,
1998 and 1997 was approximately $712,000, $663,000
and $800,000, respectively.
12. STOCK OPTIONS AND
WARRANTS The Company has four employee stock option plans
which have been approved by the stockholders,
Stratasys, Inc. Employee Incentive Stock Option Plan
#1 (Plan 1), Stratasys, Inc. 1994 Incentive Stock
Option Plan (Plan 2), Stratasys, Inc. 1994-2
Incentive Stock Option Plan (Plan 3) and Stratasys,
Inc. 1998 Incentive Stock Option Plan (Plan 4). The
four plans provide for the granting of options to
qualified employees of the Company, independent
contractors, consultants and other persons to
purchase up to 1,800,000 shares of common stock.
All the options under Plan 1 have been granted and
the plan expires April 19, 2001. Under Plan 2,
options to purchase 173,442 shares of common stock
have been granted. Under Plan 3, options to purchase
an aggregate of 985,188 shares of common stock have
been granted. Under Plan 4, options to purchase an
aggregate of 496,580 shares of common stock have been
granted. All options under the above plans are
granted at a price not less than the fair market
value of the Company's common stock at the dates of
grant and are exercisable over five years. Options to
purchase common stock under a fifth plan were granted
during 1999. This plan is subject to stockholder
approval which management anticipates in 2000.
Options to purchase 101,000 shares of common stock
have been granted under this plan.
F-16
45
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCK OPTIONS AND
WARRANTS (CONTINUED) The following summarizes the information relating to
outstanding stock options and the activity during
1999, 1998 and 1997:
WEIGHTED
NUMBER AVERAGE
OF PER SHARE EXERCISE
SHARES OPTION PRICE PRICE
Shares under option
at January 1, 1997 732,899 $ 1.59 - $ 21.44 $ 10.15
Granted in 1997 638,574 10.94 - 23.75 14.97
Exercised in 1997 (200,298) 1.59 - 16.63 9.18
Forfeited in 1997 (300,274) 5.38 - 16.62 12.73
--------- ---------------- ---------
Shares under option
at December 31, 1997 870,901 1.59 - 23.56 14.09
Granted in 1998 224,500 5.00 - 11.56 6.75
Exercised in 1998 (20,865) 1.59 - 5.38 2.07
Forfeited in 1998 (76,320) 5.38 - 23.56 13.92
--------- ---------------- ---------
Shares under option
at December 31, 1998 998,216 1.59 - 23.56 3.54
Granted in 1999 503,100 4.53 - 9.13 5.03
Exercised in 1999 (1,437) 1.59 - 1.59 1.59
Forfeited in 1999 (91,340) 5.00 - 9.81 6.34
--------- ---------------- ---------
Shares under option
at December 31, 1999 1,408,539 $ 1.59 - $ 23.75 $ 7.09
========= ================ =========
Options exercisable at
December 31, 1999 696,796 $ 1.59 - $ 23.75 $ 9.58
========= ================ =========
F-17
46
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCK OPTIONS AND
WARRANTS (CONTINUED) The Company, as part of sales of common stock and
other agreements, has issued warrants to purchase the
Company's common stock. The following summarizes the
information relating to outstanding warrants and the
activity during 1999, 1998 and 1997:
WEIGHTED
NUMBER AVERAGE
OF PER SHARE EXERCISE
SHARES WARRANT PRICE PRICE
Shares under warrants
at January 1, 1997 250,405 $5.80 - $21.00 $ 15.95
Granted in 1997 710,090 13.50 - 14.50 14.08
Exercised in 1997 (7,007) 5.80 5.80
--------- ----------------- ---------
Shares under warrants
at December 31, 1997 953,488 5.80 - 21.00 14.60
Granted in 1998 154,000 5.00 - 13.88 12.38
Repurchased in 1998 (710,090) 13.50 - 14.50 14.08
Forfeited in 1998 (161,043) 5.80 - 21.00 15.95
--------- ---------------- ----------
Shares under warrants
at December 31, 1998
and 1999 236,355 $ 5.00 - $ 15.44 $ 12.48
======== ================= =========
Warrants exercisable at
December 31, 1998
and 1999 236,355 $ 5.00 - $15.44 $ 12.48
======== ================= =========
Had compensation cost for the Company's five stock
option plans and stock purchase warrants been
determined based on the fair value at the grant date
of awards in 1999, 1998 and 1997, consistent with the
provisions of SFAS 123, the Company's net income
(loss) and income (loss) per share would have been
reduced (increased) to the pro forma amounts
indicated below:
1999 1998 1997
Net Income (loss) - as reported $ 2,143,649 $ (3,318,015) $ 514,833
Net income (loss) - pro forma 1,721,787 (3,576,561) (271,113)
Diluted income (loss) per share -
as reported 0.37 (0.55) 0.09
Diluted income (loss) per share -
pro forma 0.30 (0.59) (0.05)
F-18
47
STRATASYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Stock options and
warrants (continued) The Company used the Black-Scholes option pricing
model to determine the fair value of grants made in
1999, 1998 and 1997. The following assumptions were
applied in determining the pro forma compensation
cost:
1999 1998 1997
Risk-free interest rate 5.57 5.63 6.00
Expected option life 3-4 years 3 years 3 years
Expected price volatility 67% 57% 52%
13. Export sales Export sales were as follows for the years ended
December 31:
1999 1998 1997
Europe $ 6,348,845 $ 5,866,235 $ 5,735,000
Asia Pacific 11,070,532 7,131,958 6,057,000
Other 2,333,956 1,020,244 847,000
-------------------------------------------------
$19,753,333 $14,018,437 $12,639,000
=================================================
14. Quarterly results
(unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1999
Net sales $ 7,603,144 $ 8,864,395 $ 10,359,357 $ 10,760,042
Gross profit 5,193,050 5,631,785 7,048,107 6,802,096
Net income (loss) (193,013) 212,928 964,587 1,159,147
Income (loss) per
common share:
Basic (0.03) 0.04 0.17 0.20
Dilutive (0.03) 0.04 0.17 0.20
1998
Net sales $ 7,007,672 $ 8,256,810 $ 7,836,247 $ 9,336,469
Gross profit 4,631,825 5,721,092 4,887,940 6,106,270
Net income (loss) 11,772 434,737 49,618 (3,814,142)
Income (loss) per
common share:
Basic -- 0.07 0.01 (0.63)
Dilutive -- 0.07 0.01 (0.63)
F-19
48
STRATASYS, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
COLUMN A Column B Column C Column D Column E
Balance at Additions - Deductions Balance
Beginning Charged from at End
DESCRIPTION Of Period to Income Reserves of Period
1999
Reserve for bad debts and allowances $279,508 $ 29,920 $ 9,428 $300,000
=================================================================
Reserve for sales returns and other allowances $129,833 $100,000 $109,000 $120,833
=================================================================
1998
Reserve for bad debts and allowances $462,461 $ 30,000 $212,953 $279,508
=================================================================
Reserve for sales returns and other allowances $ 52,000 $583,080 $505,247 $129,833
=================================================================
1997
Reserve for bad debts and allowances $350,000 $204,697 $ 92,236 $462,461
=================================================================
Reserve for sales returns and other allowances $120,000 $610,186 $678,186 $ 52,000
=================================================================
F-20