UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2003
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 of incorporation or (I.R.S. Employer
organization) Identification No.)
14950 Martin Drive, Eden Prairie, Minnesota 55344
(Address of principal executive offices) (Zip Code)
(952) 937-3000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
As of November 7, 2003, the Registrant had 6,812,343 shares of common stock,
$.01 par value, outstanding.
STRATASYS, INC.
Table of Contents
-----------------
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002...............................1
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
three and nine months ended September 30, 2003 and 2002..................................................2
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2003 and 2002..............................................................................3
Notes to Financial Statements............................................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk..............................................16
Item 4. Controls and Procedures.................................................................................17
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds...............................................................18
Item 6. Exhibits and Reports on Form 8-K........................................................................18
Signatures.......................................................................................................19
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STRATASYS, INC.
CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2003 2002
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 49,904,156 $ 14,193,590
Accounts receivable, less allowance for returns and
doubtful accounts of $804,439 in 2003 and $537,374 in 2002 12,050,847 10,640,451
Inventories 7,042,219 6,537,446
Prepaid expenses 1,961,523 921,404
Deferred income taxes 126,000 126,000
----------------------------------------------------
Total current assets 71,084,745 32,418,891
----------------------------------------------------
PROPERTY AND EQUIPMENT, net 6,096,542 5,937,200
----------------------------------------------------
OTHER ASSETS
Intangible assets, net 2,626,128 2,953,401
Deferred income taxes 2,174,000 2,174,000
Other 115,622 116,995
---------------------------------------------------
4,915,750 5,244,396
----------------------------------------------------
$ 82,097,037 $ 43,600,487
----------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Mortgage payable, current portion $ 66,906 $ 61,572
Accounts payable and other current liabilities 5,581,326 4,141,635
Unearned maintenance revenue 4,519,901 4,474,281
----------------------------------------------------
Total current liabilities 10,168,133 8,677,488
----------------------------------------------------
MORTGAGE PAYABLE, less current portion 2,109,448 2,156,790
----------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, authorized 15,000,000
shares, issued 7,991,580 shares in 2003 and
6,518,200 shares in 2002 79,916 65,182
Capital in excess of par value 67,445,818 35,025,413
Retained earnings 9,553,808 4,908,388
Accumulated other comprehensive loss (89,291) (61,979)
Less cost of treasury stock, 1,179,237 shares in 2003
and 2002 (7,170,795) (7,170,795)
----------------------------------------------------
Total stockholders' equity 69,819,456 32,766,209
----------------------------------------------------
$ 82,097,037 $ 43,600,487
----------------------------------------------------
See notes to consolidated financial statements.
1
STRATASYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
--------------------------------------------------------------------------------------------------------
Three Months Ended September Nine Months Ended September 30,
------------------------------------------------------------
2003 2002 2003 2002
(unaudited) (unaudited) (unaudited) (unaudited)
--------------------------------------------------------------------------------------------------------
Sales $ 12,898,673 $12,028,475 $ 35,650,075 $ 28,536,472
Cost of goods sold 4,417,305 4,326,895 12,395,612 11,069,358
----------------------------- ----------------------------
Gross profit 8,481,368 7,701,580 23,254,463 17,467,114
----------------------------- ----------------------------
Costs and expenses
Research and development 1,288,621 1,273,278 3,784,219 3,611,537
Selling, general and administrative 4,590,948 3,988,082 13,421,645 11,850,599
----------------------------- ----------------------------
5,879,569 5,261,360 17,205,864 15,462,136
----------------------------- ----------------------------
Operating income 2,601,799 2,440,220 6,048,599 2,004,978
----------------------------- ----------------------------
Other income (expense)
Interest income 52,583 36,325 128,835 117,228
Interest expense (40,558) (44,051) (122,846) (135,313)
Other (18,067) (22,406) 87,973 133,582
----------------------------- ----------------------------
(6,042) (30,132) 93,962 115,497
----------------------------- ----------------------------
Income before income taxes 2,595,757 2,410,088 6,142,561 2,120,475
Income taxes 610,440 686,874 1,497,141 604,336
----------------------------- ----------------------------
Net income $ 1,985,317 $ 1,723,214 $ 4,645,420 $ 1,516,139
----------------------------- ----------------------------
Earnings per common share
Basic $ 0.32 $ 0.32 $ 0.81 $ 0.28
----------------------------- ----------------------------
Diluted $ 0.30 $ 0.31 $ 0.74 $ 0.27
----------------------------- ----------------------------
Weighted average number of common
shares outstanding
Basic 6,239,451 5,326,904 5,768,496 5,346,650
----------------------------- ----------------------------
Diluted 6,657,542 5,529,858 6,303,237 5,616,378
----------------------------- ----------------------------
COMPREHENSIVE INCOME
Net income $ 1,985,317 $ 1,723,214 $ 4,645,420 $ 1,516,139
Other comprehensive income (loss)
Foreign currency translation adjustment (4,578) 20,634 (27,312) 7,501
----------------------------- ----------------------------
Comprehensive income $ 1,980,739 $ 1,743,848 $ 4,618,108 $ 1,523,640
----------------------------- ----------------------------
See notes to consolidated financial statements.
2
STRATASYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
-------------------------------
2003 2002
(unaudited) (unaudited)
----------------------------------------
Cash flows from operating activities
Net income $ 4,645,420 $ 1,516,139
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes 582,770
Depreciation 1,206,148 1,197,353
Amortization 697,178 649,941
Loss on disposal of assets 135,393 119
Increase (decrease) in cash attributable to
changes in operating assets and liabilities:
Accounts receivable (1,410,396) 904,225
Inventories (504,773) (612,389)
Prepaid expenses (1,040,119) 170,548
Other assets 1,373 136,280
Accounts payable and other current liabilities 1,439,691 150,386
Unearned maintenance revenue 45,620 (150,916)
----------------------------------------
Net cash provided by operating activities 5,215,535 4,544,456
----------------------------------------
Cash flows from investing activities
Acquisition of machinery and equipment (1,500,883) (607,591)
Payments for intangible assets (369,905) (417,602)
----------------------------------------
Net cash used in investing activities (1,870,788) (1,025,193)
----------------------------------------
Cash flows from financing activities
Repayments of obligations under capitalized leases (100,526)
Purchase of treasury stock (3,641,265)
Payments of mortgage payable (42,008) (38,981)
Net proceeds from the sale of common stock 29,445,688
Net proceeds from exercise of stock options 2,989,451 1,812,260
----------------------------------------
Net cash provided by (used in) financing activities 32,393,131 (1,968,512)
----------------------------------------
Effect of exchange rate changes on cash (27,312) 7,501
----------------------------------------
Net increase in cash and cash equivalents 35,710,566 1,558,252
Cash and cash equivalents, beginning of period 14,193,590 10,211,398
----------------------------------------
Cash and cash equivalents, end of period $ 49,904,156 $ 11,769,650
----------------------------------------
See notes to consolidated financial statements.
3
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation
The financial information herein is unaudited; however, such information
reflects all adjustments (consisting of normal, recurring adjustments) which
are, in the opinion of management, necessary for a fair statement of results for
the interim period. The results of operations for the three and nine months
ended September 30, 2003, are not necessarily indicative of the results to be
expected for the full year. Certain financial information and footnote
disclosure normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been condensed or omitted. The reader is referred to the audited financial
statements and notes thereto for the year ended December 31, 2002, filed as part
of the Company's Annual Report on Form 10-K for such year.
Note 2 -- Inventory
Inventories consisted of the following at September 30, 2003 and December
31, 2002, respectively:
2003 2002
------------ ------------
Finished Goods $ 2,990,919 $ 2,869,223
Raw materials 4,051,300 3,668,223
------------ ------------
Totals $ 7,042,219 $ 6,537,446
============ ============
Note 3 -- Material Commitments
The Company has signed material commitments with several vendors for fixed
delivery of selected inventory expected to be supplied in the ensuing
twelve-month period. These commitments amount to approximately $5,000,000, some
of which contain non-cancellation clauses.
Note 4 -- Income per common share
The difference between the number of shares used to compute basic income
per share and diluted income per share relates to additional shares to be issued
upon the assumed exercise of stock options and warrants, net of shares
hypothetically repurchased at the average market price with the proceeds
of exercise. For the three months ended September 30, 2003 and 2002, the
additional shares amounted to 418,091 and 202,954, respectively. For the nine
months ended September 30, 2003 and 2002, the additional shares amounted 534,741
and 269,728, respectively.
Note 5 -- Stock based compensation
The Company has various stock option plans that have been approved by the
shareholders. The Company accounts for those plans under the recognition and
measurement principles of Accounting Principles Board No 25, "Accounting for
Stock Issued to Employees" ("APB 25"), and related interpretations. No
stock-based employee compensation is reflected in the net income for the three-
and nine-month periods ended September 30, 2003 and 2002, as all options granted
under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation", to stock-based employee compensation:
4
Three Months Ended September 30,
2003 2002
------------- --------------
Net income as reported $ 1,985,317 $ 1,723,214
Effect of stock based compensation
accounted for under the fair value
recognition provisions, net of
tax (37,750) (142,750)
Pro forma net income $ 1,947,567 $ 1,580,464
============== ===============
Earnings per share:
Basic, as reported $ .32 $ .32
Basic, pro forma .31 .30
Diluted, as reported .30 .31
Diluted, pro forma .29 .29
Weighted average Shares
Basic 6,239,451 5,326,904
Diluted 6,657,542 5,529,858
Nine Months Ended September 30,
2003 2002
------------- --------------
Net income as reported $ 4,645,420 $ 1,516,139
Effect of stock based compensation
accounted for under the fair value
recognition provisions, net of
tax (113,250) (428,250)
------------- --------------
Pro forma net income $ 4,532,170 $ 1,087,889
============== ==============
Earnings per share:
Basic, as reported $.81 $ .28
Basic, pro forma .79 .20
Diluted, as reported .74 .27
Diluted, pro forma .72 .19
Weighted average Shares
Basic 5,768,496 5,346,650
Diluted 6,303,237 5,616,378
5
Note 6 -- Subsequent events
In October 2003, the Company paid off its mortgage on its manufacturing
facility, the balance of which was approximately $2,176,000, and which was
subject to a $25,000 pre-payment fee.
In November 2003, the Company announced a 3-for-2 stock split in the form
of a stock dividend. Under this stock split, one new share will be issued for
every two common shares owned by stockholders of record as of November 20, 2003.
No retroactive effect has been given to any of the share or earnings per share
information in this financial statement as a result of the 3-for-2 stock split.
Any retroactive effect on the share or earnings per share information will be
recorded beginning in the fourth quarter of 2003.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We develop, manufacture, and market a family of rapid prototyping ("RP")
and 3D printing systems 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. 3D printing systems are very simple
to operate. They offer a fast, low-cost, alternative for building concept and
working models. Conversely, RP systems are more expensive and allow users to
make prototype models out of a variety of materials that are better suited to
test for form, fit, and functionality. Historically, our sales growth has been
derived from a number of industries, including consumer products, electronics,
general manufacturing, medical, automotive, and aerospace. Educational
institutions, government agencies, and service bureaus have also been
significant markets for us.
Our strategy for the remainder of 2003 will be to continue to expand our
position in the 3D printing market and our core RP businesses. We anticipate
that our expenses will increase in 2003 over the amounts reported in 2002, but
that our revenue growth will exceed that of our expenses. This should allow for
increased profitability from operations in 2003 as compared with 2002. For the
first nine months of 2003, revenues were $35,650,075, compared with $28,536,472
in the first nine months of 2002. Operating income in the first nine months of
2003 improved to $6,048,599, compared with operating income of $2,004,978 in the
comparable 2002 period.
We believe that the 3D printing market represents a significant growth area
and that our Dimension(TM) 3D Printer will continue to have a significant
positive impact on our results in 2003 and beyond. However, we remain fully
committed to the growth of our core FDM(R) business, which is currently served
by our FDM Titan(TM), FDM Vantage(TM), Prodigy Plus(TM), FDM 3000, and FDM
Maxum(TM) systems. We also believe that our service, consumable, and maintenance
revenues derived from our installed base of systems will improve over the
results attained in 2002. In the first nine months of 2003, sales of our
Dimension, Prodigy Plus, and Titan-class systems were particularly strong. Total
units increased to 465 systems compared with 318 systems in the first nine
months of 2002. Through the nine months ended September 30, 2003, we have
already shipped more systems than in the entire year of 2002. Revenues derived
from our combined service, consumable, and maintenance sources were
significantly above prior period results. We believe that we shipped more
systems in the first nine months of 2003 than any other RP or 3D printing
company in the world, a repeat of our full-year performance in 2002.
Our current and future growth is largely dependent upon our ability to
penetrate new markets, and develop and market new rapid prototyping and 3D
printing systems, materials, applications, and services that meet the needs of
our current and prospective customers. In May 2003, we introduced
polyphenylsulfone ("PPSF") for use on our Titan systems. PPSF, a specialty
thermoplastic, allows the user to build prototypes that combine the properties
of high strength, heat resistance, and chemical resistance. Potential markets
for PPSF include the aerospace industry, due to the material's inflammability
properties, and the automotive industry, due to its petroleum resistance and its
ability to function at over 400(Degree) F. In June 2003, we introduced FDM
Vantage. Vantage is built on our T-Class high-performance platform, and allows
users to build models in thermoplastics such as ABS and polycarbonate at a
significantly lower price than our Titan system.
In August 2003, we raised approximately $31,230,000, before expenses,
through the issuance of 1,000,000 shares of our common stock and warrants to
purchase 150,000 shares of our common stock in a private financing. In this
financing, we sold 700,000 shares at $29.50 per share and 300,000 shares at
$35.28 per share. In connection with this financing, we issued warrants to
purchase 105,000 shares at an exercise price of $34.66 per share and warrants to
purchase 45,500 shares at an exercise price of $41.45 per share. In September
2003, we announced that we entered into an exclusive distributor agreement with
Objet Geometries, Ltd. Under this agreement, we will exclusively market, sell,
and service Objet's Eden333(TM) product line in the North American market.
Our ability to implement our strategy for 2003 and beyond is subject to
numerous uncertainties, many of which are described in this Management's
Discussion and Analysis of Financial Condition and Results of Operations and in
the section below captioned "Forward Looking Statements and Factors That May
Affect Future Results of Operations." We cannot ensure that our efforts will be
successful.
7
Our expense levels are based in part on our expectations of future
revenues. While we have adjusted, and will continue to adjust, our expense
levels based on both actual and anticipated revenues, fluctuations in revenues
in a particular period could adversely impact our operating results. Whereas our
backlog as of September 30, 2003 was approximately $2,736,000, it would not be
sufficient to meet our budgeted fourth quarter revenue targets should new system
orders in that quarter decline. These and other factors may lead to operating
losses in certain quarters, or reduced operating and gross profits as compared
with the results reported in 2002 and to date in 2003.
We believe that sales of a number of RP and 3D printing manufacturers in
the rapid prototyping industry grew between 5-30% in 2002. However, declining
sales by the largest company in the industry likely caused the total RP industry
sales to decline by approximately 10% in 2002. We believe that 3D printers
accounted for more than 44% of the all RP systems shipped in 2002. Furthermore,
we believe the 3D printing segment of the RP market is the fastest growing
component of the market, with a growth rate of approximately 34%, and that our
Dimension system, based upon price and performance, is positioned to capture an
increased share of this market. Penetration of the 3D Printing market has been
limited to date. We believe, based on a growing installed base of more than
three million CAD seats, the potential market for low-priced 3D Printers could
be in the hundreds of thousands of units. Yet, since inception of the RP
industry, approximately 12,000 RP systems of all kinds have been sold.
We also believe that there is a long-term trend toward lower-priced RP
systems capable of producing functional prototypes. This pricing trend should
lead to growth in the more traditional functional prototyping marketplace as
companies continue to address in-house RP needs. Certain market segments in the
industry have not demonstrated significant pricing sensitivity. These segments
are more interested in modeling envelope size, modeling material, throughput,
part quality, part durability, rapid manufacturing, and rapid tooling, which
should allow growth to continue for higher-priced RP systems such as our Maxum,
Titan, and Prodigy Plus systems that address these needs.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 2002
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 our statement of operations.
For the three months ended September 30,
2003 2002
----- ----
Sales 100.0% 100.0%
Cost of goods sold 34.2% 36.0%
Gross profit 65.8% 64.0%
Selling, general, and administrative expenses 35.6% 33.2%
Research & development expenses 10.0% 10.6%
Operating income 20.2% 20.3%
Other income (expense) (0.1%) (0.3%)
Income before income taxes 20.1% 20.0%
Income taxes 4.7% 5.7%
Net income 15.4% 14.3%
Net Sales
Net sales for the three months ended September 30, 2003, were $12,898,673,
compared with net sales of $12,028,475 for the three months ended September 30,
2002. This represents an increase of $870,198, or 7.2%. Revenues in the third
quarter were the highest in our history. Dimension sales were very strong in the
quarter. Unit sales of our T-class systems, which include Titan and Vantage,
were flat as compared to the third quarter of 2002. Total units shipped in the
three months ended September 30, 2003, amounted to 185, compared to 160 systems
in the 2002 period, an increase of almost 16%. Revenues from consumables, other
services, and maintenance also increased significantly in the three months ended
September 30, 2003 as compared with the same 2002 period, and constitute one of
the fastest growing components of our mix. This increase was principally due to
the larger installed base of systems and a continued emphasis on the sale of
maintenance contracts. Additionally, our new fee-based program to market
prototypes favorably impacted the results in the third quarter of 2003.
8
Domestic sales accounted for approximately 61% of total revenue in the
three months ended September 30, 2003, as compared with approximately 55% in the
three months ended September 30, 2002. The total revenue growth rate for our
domestic regions amounted to almost 19%, as compared with a decline of
approximately 8% for our international regions. Our domestic reseller network
was very successful in selling Dimension systems in the third quarter of 2003.
In the United States, we consolidated our domestic sales regions in 2003,
reducing the number of regions to two from three. Our coastal region, made up of
the east coast and the southern half of the of the United States, recorded the
highest revenues in the third quarter of 2003, while the central region, which
also includes the northern half of the United States and which is dominated by
the automotive industry, continued to lag. Internationally, our Asia Pacific
region, which comprises Japan, China, the Far East and India, recorded revenues
that amounted to approximately 21% of total sales. This was comparable to the
21% recorded in this region for the third quarter of 2002. Europe accounted for
approximately 18% of total revenue for the quarter ended September 30, 2003, and
approximately 23% of sales in the comparable quarter of 2002. This is the third
consecutive quarter of weakness in Europe, and remains an area of concern. We
believe that the commercial introduction of PPSF, available only since the
second quarter of 2003, should have a positive impact on sales of our Titan
system in many of our regions in future quarters. We believe that sales into our
Asia Pacific and U.S. coastal regions will remain strong throughout 2003.
However, declining economic conditions in any of our regions could adversely
impact our future sales and profitability.
GROSS PROFIT
Gross profit improved to $8,481,368, or 65.8% of sales, in the three months
ended September 30, 2003, compared with $7,701,580, or 64% of sales, in the
comparable period of 2002. This represents an increase of $779,788, or 10.1%.
Gross profit increased due to higher revenues, material and labor cost savings
on Dimension, and overhead and labor cost control. Gross profits on sales of
Dimension systems have improved as compared with 2002 by material and labor cost
reductions that were implemented in late 2002 and throughout 2003. In addition,
consumable and service revenues, driven by our larger installed base and which
also have high margins, recorded higher than expected growth. Over the next
several quarters, there could be a modest expansion to our gross margins over
the percentages we have reported over the last several quarters. As such, gross
margins should range between 64% and 67% of sales, but will be highly dependent
upon our sales volume and the mix of products that we ship.
OPERATING EXPENSES
SG&A expenses increased to $4,590,948 for the three months ended September
30, 2003, from $3,988,082 for the comparable period of 2002. This represents an
increase of $602,866, or 15.1%. As a percentage of sales, SG&A expenses
increased to 35.6% in the quarter ended September 30, 2003, from 33.2% in the
comparable 2002 quarter. Expenses associated with the Objet distributor
agreement, including due diligence, legal, and product launch expenses, amounted
to almost $250,000. Bad debt expense, principally due to the recording of
additional reserves associated with non-performing accounts, exceeded $175,000,
versus no bad debt expense in the comparable 2002 period. Variable selling
expenses such as commissions and incentive pay were higher in the 2003 period as
a result of increased revenues. Marketing, promotional, and sales expenses
associated with Dimension continued to be higher than both our 2003 plan as well
as the prior period of 2002.
R&D expenses increased to $1,288,621 for the three months ended September
30, 2003 from $1,273,278 for the three months ended September 30, 2002. This
amounted to an increase of $15,343, or 1.2%. On higher revenues, R&D expenses
decreased as a percentage of sales to 10% in the three months ended September
30, 2003, from 10.6% in the 2002 period. Our objective in 2003 has been to keep
R&D expense at roughly the same amount as incurred in 2002, although quarterly
comparisons may vary depending upon the timing of certain expenses.
We will continue to focus on our operating expenses in 2003, with the
intent to keep the growth of our operating expenses at a rate less than the
growth of our revenues. SG&A expenses will continue to be impacted by higher
Dimension-related selling and marketing expenses, higher investor relations
9
expenses, and higher regulatory-related expenses (e.g., legal and accounting
expenses), as compared with 2002. We will also continue to pursue other
strategic business opportunities as we become aware of them. The expenses
associated with the evaluation of these opportunities could also impact the
total amount of SG&A expenses that we report. However, we expect that SG&A
expenses will decline as a percentage of sales as compared with 2002 as we
increase revenues in 2003. We cannot, however, ensure that we will be
successful.
OPERATING INCOME
For the reasons cited above, our operating income for the three months
ended September 30, 2003 amounted to $2,601,799, or 20.2% of sales, compared
with operating income of $2,440,220, or 20.3% of sales, for the three months
ended September 30, 2002. This represents an increase of $161,579, or 6.6%.
OTHER EXPENSE
Other expense netted to $6,042 in the three months ended September 30,
2003 compared with other expense of $30,132 in the comparable 2002 period.
Interest income increased to $52,583 in the current three-month period, compared
with $36,325 in the three-month period of 2002. The increase in interest income
was primarily due to higher average cash balances in 2003, but offset by lower
interest rates. Interest expense declined to $40,558 in the three months ended
September 30, 2003 from $44,051 in the same period of 2002. In the three months
ended September 30, 2003, we recognized other expense of $18,067, principally
due to a loss of approximately $17,500 from foreign currency transactions
related to the euro, which compared with other expense of $22,406 in the
comparable 2002 period. This was also principally due to a loss on foreign
currency transactions related to the euro.
INCOME TAXES
Income tax expense amounted to $610,440, or 4.7% of sales, in the three
months ended September 30, 2003, compared with income tax expense of $686,874,
or 5.7% of sales, for the three months ended September 30, 2002. The effective
tax rate for 2003, which should benefit from R&D tax credits and permanent
differences, including those resulting from the exercise of employee stock
options, amounted to approximately 24% compared with an effective tax rate of
28.5% in 2002. We believe that our effective tax rate should fall between a
range of 24% to 27% in 2003.
NET INCOME
For the reasons cited above, our net income for the three months ended
September 30, 2003, amounted to $1,985,317, or 15.4% of sales, compared with net
income of $1,723,314, or 14.3% of sales, in the comparable 2002 period.
Accordingly, net income for the third quarter of 2003 increased by $262,203 or
15.2%, over net income for the comparable 2002 period. This resulted in earnings
per diluted common share of $.30 in the three months ended September 30, 2003,
compared with earnings per diluted common share of $.31 for the comparable 2002
period.
10
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2002
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 our statement of operations.
For the nine months ended September 30,
2003 2002
----- ----
Net sales 100.0% 100.0%
Cost of goods sold 34.8% 38.8%
Gross profit 65.2% 61.2%
Selling, general, and administrative expenses 37.6% 41.5%
Research & development expenses 10.6% 12.7%
Operating income 17.0% 7.0%
Other income .3% 0.4%
Income before income taxes 17.2% 7.4%
Income taxes 4.2% 2.1%
Net income 13.0% 5.3%
NET SALES
Net sales for the nine months ended September 30, 2003 were $35,650,075,
compared with sales of $28,536,472 for the nine months ended September 30, 2002.
This represents an increase of $7,113,603, or 24.9%. We shipped a total of 465
systems in the nine months ended September 30, 2003, a 46.2% increase over total
unit shipments of 318 systems in the comparable 2002 period. Sales of Dimension,
Prodigy Plus, and T-class systems (comprising our Titan and Vantage systems)
improved from the results reported in the comparable period in 2002. Revenues
derived from sales of consumables, maintenance, and other services increased
significantly from the amounts recorded in the comparable 2002 period. The
increase was due to our increased installed base of systems, the continued
emphasis on the sale of maintenance contracts, and growth in our other fee-based
services such as our paid parts business. Non-system revenue grew at a higher
rate than our system revenue for the nine months ended September 30, 2003, as
compared with the nine months ended September 30, 2002. This is a trend we
expect will continue.
Domestic sales accounted for almost 58% of total revenue in nine months
ended September 30, 2003, compared with 54% recorded in the comparable
nine-month period of 2002, and have increased by approximately 34% versus an
increase of approximately 14% for international sales. Domestic sales have been
aided by high Dimension sales throughout 2003, as well as strong sales of our
high-performance systems recorded by our U.S. coastal region (described above).
However, our U.S. central region, which is strongly impacted by the automotive
industry, has performed poorly throughout the nine months ended September 30,
2003 in comparison to both 2002 as well as to our plan. Our European region,
following a strong first quarter, has also reported disappointing results since
then, and for the nine-month period is lagging in terms of both prior-period
comparisons as well as our plan. We remain concerned about economic conditions
in these regions, particularly Germany, Italy, and our U.S. central region, and
the impact it could have on our sales growth. Our combined Asia Pacific region,
which comprises Japan, China, the Far East and India, accounted for
approximately 23% of total revenue in nine months ended September 30, 2003, and
through this period is ahead of both prior-year and planned results.
GROSS PROFIT
Gross profit increased to $23,254,463, or 65.2% of sales, in the nine
months ended September 30, 2003, compared with $17,467,114, or 61.2% of sales,
in the comparable period of 2002. This represents an increase of $5,787,349, or
33.1%. Gross profit improved due to higher revenues, favorable product mix,
reduced labor and material costs on the P-class platform (Dimension and Prodigy
Plus), and continued cost control over the growth rates of our total labor and
overhead expenses.
11
OPERATING EXPENSES
SG&A expenses increased to $13,421,645 for the nine months ended September
30, 2003, from $11,850,599 for the comparable period of 2002. This represents an
increase of $1,571,046, or 13.3%. The Objet Geometries distributor agreement,
mentioned above, accounted for approximately $250,000 of the increase. Variable
selling expenses related to the higher revenue in the period, coupled with
increased marketing, promotional, and sales expenses associated with Dimension
and other new products, also accounted for much of the increase in SG&A expenses
for the nine months ended September 30, 2003 as compared with the nine months
ended September 30, 2002. Additionally, higher investor relations and
regulatory-related expenses impacted the growth of our SG&A expenses during the
2003 period. Nevertheless, SG&A expenses as a percentage of sales declined to
37.6% in the nine months ended September 30, 2003, as compared with 41.5% in the
nine months ended September 30, 2002.
R&D expenses increased to $3,784,219 for the nine months ended September 30,
2003 from $3,611,537 for the nine months ended September 30, 2002. The increase
amounted to $172,682, or 4.8%. On higher revenues, R&D expenses decreased as a
percentage of sales to 10.6% in the nine months ended September 30, 2003, from
12.7% in the 2002 period. Increased wages and benefit expenses, in part impacted
by a small increase in headcount, accounted for the majority of the R&D expense
increase in the 2003 period as compared with the 2002 period.
OPERATING INCOME
For the reasons cited above, operating income for the nine months ended
September 30, 2003 amounted to $6,048,599, or 17.0% of sales, compared with
operating income of $2,004,978, or 7.0% of sales, for the nine months ended
September 30, 2002. This represents an increase of $4,043,621, or almost 202%.
OTHER INCOME
Other income netted to $93,962 in the nine months ended September 30, 2003
compared with other income of $115,497 in the comparable 2002 period. Interest
income increased to $128,835 in the current nine-month period, compared with
$117,228 in the prior year's nine-month period. The increase in interest income
was primarily due to a higher average cash balance, but offset by lower interest
rates. Interest expense declined to $122,846 in the nine months ended September
30, 2003 from $135,313 in the same period of 2002, primarily due to interest
expense on the mortgage of our manufacturing facility. In the nine months ended
September 30, 2003, we recognized other income of approximately $88,000,
principally due to income of approximately $106,000 on foreign currency
transactions related to the euro. In the nine months ended September 30, 2002,
other income amounted to approximately $134,000 in the 2002 period, principally
due to income on foreign currency transactions related to the euro.
NET INCOME
For the reasons cited above, the net income for the nine months ended
September 30, 2003, amounted to $4,645,420, or 13.0% of sales, compared with net
income of $1,516,139, or 5.3% of sales, in the 2002 period. Accordingly, net
income for the first three quarters of 2003 increased by $3,129,281, or more
than 206%, over net income for the comparable 2003 period. This resulted in a
earnings per diluted common share of $.74 for the nine months ended September
30, 2003, compared with earnings per diluted common share of $.27 for the same
period ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
We have increased our cash and cash equivalents balances to $49,904,156 at
September 30, 2003, from $14,193,590 at December 31, 2002. In 2003, net cash
provided by our operating activities amounted to $5,215,535, compared with
$4,544,456 in 2002. The principal source of cash from our operating activities
in 2003 has been our net income of $4,645,420, as adjusted to exclude the
effects of non-cash charges, and changes in working capital, primarily
inventories, accounts receivable, and accounts payable. Whereas our net accounts
receivable balances increased to $12,050,847 in 2003 from $11,228,513 as of
September 30, 2002, the increase should be evaluated against the 24.9% increase
in sales. While we have been successful in controlling the growth of our
receivables relative to our sales growth, in large part by instituting tighter
12
controls in our credit and collections areas, some of our international
distributors continue to carry high balances, some of which have exceeded our
normal terms. These delays in payment adversely impact our days sales
outstanding ("DSO"). Nevertheless, DSO's have declined over the past two years,
to approximately 88 days as of September 30, 2003, from approximately 112 days
as of September 30, 2002.
For the nine months ended September 30, 2003 and 2002, our inventory
balances were $7,042,219 and $7,139,981, respectively. We have instituted better
inventory management and controls, but recognize that we have opportunities to
make considerably more improvements to reduce overall inventory and increase
turns. Over the two-year period, inventory turns have improved to 2.0 times in
the nine months ended September 30, 2003, from 1.6 times in the comparable 2002
period. A significant portion of our inventory is dedicated to fulfill our
service contracts and warranty obligations. As we have introduced several new
products over the last nine quarters, there are many more platforms and models
to service than in the past, which increases the requirements to maintain
inventory spares. Additionally, we have started to stock limited inventory from
Objet Geometries, in order to fulfill our obligations under the distributor
agreement that we recently announced.
Increases to prepaid expenses used cash of $1,040,119 in the nine months
ended September 30, 2003, versus cash provided by prepaid expenses of $170,548
in the comparable 2002 period. The increase is largely due to contractual
obligations involving the Objet Geometries distribution agreement. An increase
in accounts payable and other current liabilities increased cash by $1,439,651,
reflecting increases to our accounts payable and net income tax payable
accounts.
Our investing activities used cash of $1,870,788 and $1,025,193 in the nine
months ended September 30, 2003 and 2002, respectively. Property and equipment
acquisitions totaled $1,500,883 in 2003 and $607,591in 2002. Over the two-year
period, the majority of the equipment we purchased was for manufacturing or
engineering development, tooling, leasehold improvements, and the acquisition of
computer systems and software applications. Payments for intangible assets,
including patents and capitalized software, amounted to $369,905 and $417,602
for the nine months ended September 30, 2003 and 2002, respectively
Our financing activities provided cash of $32,393,131 and used cash of
$1,968,512 in the nine months ended September 30, 2003 and 2002, respectively.
Net proceeds from the sale of 1,000,000 shares of our common stock and issuance
of warrants to purchase 150,000 shares of our common stock amounted to
$29,445,688. The exercise of stock options and warrants provided cash of
$2,989,451 and $1,812,260 in the first nine months of 2003 and 2002,
respectively. We used cash of $3,641,265 to purchase outstanding stock through
our stock buyback program in the nine months ended September 30, 2002. While our
stock buyback program is still in effect, we have not purchased any outstanding
stock in 2003. Payments for obligations under capital leases used cash of
$100,526 in the 2002 period; in 2003 we no longer have any outstanding capital
leases. Payments on our mortgage payable used cash of $42,008 in the 2003
nine-month period and $38,981 in the comparable 2002 period.
For the balance of 2003, we expect to use our cash for working capital
purposes; for improvements to our manufacturing facility; for leasehold
improvements; for new product and materials development; for sustaining
engineering; for the acquisition of equipment, including production equipment,
tooling, and computers; for the purchase of intangible assets, including patents
and capitalized software; for increased selling and marketing activities,
especially as they relate to the continued Dimension market development; for
acquisitions; for strategic business development and/or opportunities, including
the Objet Geometries distributor agreement; and for our common stock buyback
program. In October 2003, we paid our mortgage in full, the balance of which was
approximately $2,176,000, and which was subject to a $25,000 pre-payment fee. In
October 2002, our board of directors authorized a continuation of our stock
buyback program by authorizing an additional $1,000,000 to the prior
authorization of $2,000,000, net of the proceeds from the exercise of stock
options. We have approximately $1,300,000 available under this authorization.
While we believe that the primary source of liquidity during 2003 will be
derived from current cash balances and cash flows from operations, we have
maintained a line of credit for the lesser of $4,000,000 or a defined borrowing
base. To date, we have not borrowed against this credit facility.
As of September 30, 2003, we had gross accounts receivable of $12,855,286,
less an allowance of $804,439 for returns and doubtful accounts. Historically,
our bad debt expense has been minimal. Certain customers, especially those that
purchased our Maxum or Titan systems, continue to carry high balances.
Additionally, at September 30, 2003, large balances were concentrated with
certain international distributors, and some of these balances exceed our
13
payment terms. An additional reserve of approximately $120,000 was recorded in
the third quarter ended September 30, 2003, as a result of the non-payment by
two of these international distributors. Default by one or more of these
distributors or customers would result in a significant charge against our
current reported earnings. We have reviewed our policies that govern credit and
collections, and will continue to monitor them in light of current payment
status and economic conditions. While we can give no assurances, we believe that
most, if not all, of the accounts receivable balances will ultimately be
collected.
Our total current assets amounted to $71,084,745 at September 30, 2003, the
majority of which consisted of cash and cash equivalents, inventories and
accounts receivable. Total current liabilities amounted to $10,168,133. Our debt
as of September 30, 2003, was minimal, consisting of a mortgage payable of
$2,176,354, which was paid in full in October 2003. We estimate that we will
spend approximately $1,750,000 in 2003 for facility improvements, production and
R&D equipment, computers and integrated software, and tooling, approximately
$1,500,000 has already been incurred. We estimate that as of September 30, 2003,
material commitments for inventory purchases from selected vendors for the
ensuing twelve-month period ending September 30, 2004, will amount to
approximately $5,000,000. We intend to finance these purchases from existing
cash or from cash flows from operations.
INFLATION
We believe that inflation has not had a material effect on our operations
or on our financial condition during the three most recent fiscal years.
FOREIGN CURRENCY TRANSACTIONS
We invoice sales to certain European distributors in euros. Our reported
results are therefore subject to fluctuations based upon changes in the exchange
rates of that currency in relation to the United States dollar. In the nine
months ended September 30, 2003, income from foreign currency translations
amounted to approximately $106,000, whereas in the comparable 2002 period we
reported income from foreign currency translations of approximately $134,000. In
the nine months ended September 30, 2003, we hedged approximately
(euro)1,000,000 of our accounts receivable that were denominated in euros. The
hedge resulted in a currency translation loss of approximately $136,000 for the
nine months ended September 30, 2003. We intend to continue to hedge some of our
accounts receivable balances that are denominated in euros throughout 2003, and
will continue to monitor our exposure to currency fluctuations. Instruments to
hedge our risks may include foreign currency forward, swap, and option
contracts. These instruments will be used to selectively manage risks, but there
can be no assurances that we will be fully protected against material foreign
currency fluctuations. We expect to continue to derive most of our revenue from
regions where the transactions are negotiated, invoiced, and paid in US dollars.
Fluctuations in the currency exchange rates in these other countries may
therefore reduce the demand for our products by increasing the price of our
products in the currency of countries in which the local currency has declined
in value.
CRITICAL ACCOUNTING POLICIES
We have prepared our financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America. This has required us to make estimates, judgments, and assumptions that
affected the amounts we reported.
We have identified several critical accounting policies that required us to
make assumptions about matters that were uncertain at the time of our estimates.
Had we used different estimates and assumptions, the amounts we recorded could
have been significantly different. Additionally, actual results that would have
a material effect on our financial condition or results of operations could
result had we used different assumptions or conditions. The critical accounting
policies that were affected by the estimates, assumptions, and judgments used in
the preparation of our financial statements are listed below.
14
Revenue Recognition
We recognize revenue when 1) persuasive evidence of a final agreement
exists, 2) delivery has occurred or services have been rendered, 3) the selling
price is fixed or determinable, and 4) collectability is reasonably assured.
Revenue from system and consumable sales is primarily recognized at time of
shipment if the shipment conforms to the terms and conditions of the purchase
agreement. Revenue from maintenance contracts is recognized ratably over the
term of the contract, usually one year. On certain sales that require a one-year
warranty rather than our standard 90-day warranty, a percentage of the selling
price that represents the extended warranty is deferred and recognized ratably
over the period of the extended warranty as an implied maintenance contract.
This has had the effect of deferring, for the nine months ended September 30,
2003, approximately $1,425,000 of revenue that will be recognized in future
periods.
We assess collectability as part of the revenue recognition process. We
evaluate a number of factors to assess collectability, including an evaluation
of the creditworthiness of the customer, past payment history, and current
economic conditions. If it is determined that collectablity cannot be reasonably
assured, we would decline shipment, request a down payment, or defer recognition
of revenue until ultimate collectability is more determinable.
We also record a provision for estimated product returns and allowances in
the period in which the related revenue is recorded. This provision against
current gross revenue is based principally on historical rates of returns, but
also factors in changes in the customer base, geographic economic conditions,
and changes in the financial conditions of our customers. If past trends were to
change, we would potentially have to increase or decrease the amount of the
provision for these returns. As of September 30, 2003, our allowance for returns
was approximately $198,000.
Allowance for Doubtful Accounts
While we evaluate the collectability of a sale as part of our revenue
recognition process, we must also make judgments regarding the ultimate
realization of our accounts receivable and notes receivable balances. A
considerable amount of judgment is required in assessing the realization of
these receivables, including the aging of the receivables and the
creditworthiness of each customer. We may not be able to accurately and timely
predict changes to a customer's financial condition. If a customer's financial
condition should suddenly deteriorate, calling into question our ability to
collect the receivable, our estimates of the realization of our receivables
could be adversely affected. We might then have to record additional allowances
for doubtful accounts, which could have an adverse effect on our results of
operations in the period affected.
Our allowance for doubtful accounts is adjusted on a quarterly basis using
two methods. First, our overall reserves are based on a percentage applied to
certain aged receivable categories that are predominately based on historical
bad debt write-off experience. Then, we make an additional evaluation of overdue
customer accounts, for which we specifically reserve. In our evaluation we use a
variety of factors such as past payment history, the current financial condition
of the customer, and current economic conditions. We also evaluate our overall
concentration risk, which assesses the total amount owed by each customer,
regardless of its current status. Certain of our international distributors have
carried large balances that have become overdue. While some of these
distributors have paid down their balances and are still considered performing,
we have either converted certain of these accounts receivable to notes
receivable (some of which are collateralized), or placed distributors on payment
plans that strictly limit the amount of new business that we will honor unless
they adhere to the payment plans. In the third quarter of 2003, we increased our
reserves by approximately $120,000 based on the payment performance of two of
these international distributors. A default by one or more of these distributors
could have a material effect, ranging from $200,000 to $800,000, on our reported
operating results in the period affected. As of September 30, 2003, our
allowance for doubtful accounts amounted to approximately $606,000.
Inventories
Our inventories are recorded at the lower of cost or market, with cost
based on a first-in, first-out basis. We periodically assess this inventory for
obsolescence and potential excess by reducing the difference between our cost
and the estimated market value of the inventory based on assumptions about
15
future demand and historical sales patterns. Our inventories consist of
materials and products that are subject to technological obsolescence and
competitive market conditions. If market conditions or future demand are less
favorable than our current expectations, additional inventory write downs or
reserves may be required, which could have an adverse effect on our reported
results in the period the adjustment is made. Additionally, engineering or field
change orders ("eco" and "fco", respectively) introduced by our engineering
group could suddenly create extensive obsolete and/or excess inventory. Although
our engineering group considers the estimated effect that an eco or fco would
have on our inventories, a mandated eco or fco could have an immediate adverse
affect on our reported financial condition if it required the use of different
materials in either new production or our service inventory.
Some of our inventory is returned to us by our customers and refurbished.
This refurbished inventory, once fully repaired and tested, is functionally
equivalent to new production and is utilized to satisfy many of our requirements
under our warranty and service contracts. Upon receipt of the returned material,
this inventory is recorded at a discount from original cost, and further reduced
by estimated future refurbishment expense. While we evaluate this service
material in the same way as our stock inventory (i.e., we periodically test for
obsolescence and excess), this inventory is subject to changing demand that may
not be immediately apparent. Adjustments to this service inventory, following an
obsolescence or excess review, could have an adverse effect on our reported
financial condition in the period when the adjustments are made.
Income Taxes
We comply with SFAS No. 109, "Accounting for Income Taxes," which requires
that deferred tax assets and liabilities be recognized using enacted tax rates
for the effect of temporary differences between the book and tax bases of
recorded assets and liabilities. SFAS 109 also requires a valuation allowance if
it is more likely than not that a portion of the deferred tax asset will not be
realized. We have determined that it is more likely than not that our future
taxable income will be sufficient to realize our deferred tax assets.
Our provision for income taxes is based on our effective income tax rate.
The effective rate is highly dependent upon a number of factors, including our
total earnings, the geographic location of sales, the availability of tax
credits, the exercise of employee stock options, and the effectiveness of our
tax planning strategies. We monitor the effects of these variables throughout
the year and adjust our income tax rate accordingly. However, if our actual
results differ from our estimates, we could be required to adjust our effective
tax rate or record a valuation adjustment on our deferred tax assets. This could
have an adverse effect on our financial condition and results of operations.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Our cash and cash equivalent investments are exclusively in short-term
money market and sweep instruments with maturities of less than 90 days. These
are subject to limited interest rate risk. A 10% change in interest rates would
not have a material effect on our financial condition or results of operations.
As of October 2003, we paid off the mortgage on our facility and do not have any
other material indebtedness that bears interest.
FOREIGN CURRENCY EXCHANGE RATE RISK
We have not historically hedged sales from or expenses incurred by our
European operations that are conducted in euros. Therefore, a hypothetical 10%
change in the exchange rates between the U.S. dollar and the euro could increase
or decrease our earnings before taxes by less than $100,000 for the continued
maintenance of our European facility. In the first nine months of 2003 we hedged
(euro)1,000,000 of our accounts receivable balances that are denominated in
euros. A hypothetical 10% change in the exchange rates between the US dollar and
the euro could increase or decrease earnings before taxes by less than $100,000.
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", "estimate" or "believe" or other
similar words are forward-looking statements that we deem to be covered by and
16
to qualify for the safe harbor protection covered by the Private Securities
Litigation Reform Act of 1995 (the "1995 Act"). Investors and prospective
investors in our 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 RP and 3D printing systems, services and consumables, and our ability
to maintain our gross margins on these sales. The forward-looking statements
include our assumptions about the size of the RP and 3D printing market, and our
ability to penetrate, compete, and successfully sell our products in these
markets. They include our plans and objectives to introduce new products, to
control expenses, to improve the quality and reliability of our systems, to
respond to new or existing competitive products, and to improve profitability.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions, among others, that we:
o will be able to continue to introduce new RP and 3D printing systems
and materials acceptable to the market, and to continue to improve our
existing technology and software in our current product offerings;
o will be able to successfully develop and expand the 3D printing market
and that this market will accept our products;
o will be able to maintain our revenues and gross margins on our present
products;
o will be able to control our operating expenses;
o will be able to expand our manufacturing and service capabilities to
meet the expected demand generated by Dimension;
o will be able to successfully commercialize PPSF, and that the market
will accept this new material;
o will be able to retain and recruit employees with the necessary skills
to produce, develop, market, and sell our products; and
o will be able to successfully and profitably distribute and service the
Eden 333 product line that is governed by the distributor agreement
between Objet Geometries and us.
Assumptions relating to the foregoing involve judgments with respect to,
among other things, future economic, geo-political, competitive, market and
technological conditions, and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are beyond our
control. Although we believe that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of those assumptions could prove
inaccurate, and therefore there is and can be no assurance that the results
contemplated in any such forward-looking statement will be realized. The impact
of actual experience and business developments may cause us to alter our
marketing plans, our capital expenditure budgets, or our engineering, selling,
manufacturing or other budgets, which may in turn affect our results of
operations or the success of our new product development and introduction. We
may not be able to alter our plans or budgets in a timely manner, resulting in
reduced profitability or losses.
Due to the factors noted above and elsewhere in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, our
future earnings and stock price may be subject to significant volatility,
particularly on a quarterly basis. Additionally, we may not learn of revenue or
earnings shortfalls until late in a fiscal quarter, since we frequently receive
a significant number of orders very late in a quarter. This could result in an
immediate and adverse effect on the trading price of our common stock. Past
financial performance should not be considered a reliable indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods.
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation required by Rule 13a-15(b) or 15a-15(b) under
the Securities Exchange Act of 1934 (the "Exchange Act"), management, including
our Chief Executive Officer and Chief Financial Officer, concluded that our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) were effective as of the end of the period covered by
this report.
17
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On August 17, 2003, the Registrant sold 700,000 shares of its common
stock, $.01 par value, to two accredited investors at a purchase price
of $29.50 per share, and issued to the investors warrants to purchase
105,000 shares of common stock at an exercise price of $34.66 per
share. The warrants are exercisable until February 22, 2009. The total
proceeds of the sale were $20,650,000, and the Registrant paid Merriman
Curhan Ford & Co. a commission of 5.5% of such proceeds, or $1,135,750.
The securities were sold and issued pursuant to the exemption under
Rule 506 of Regulation D under the Securities Act of 1933.
On August 22, 2003, the Registrant sold 300,000 shares of its common
stock, $.01 par value, to two accredited investors at a purchase price
of $35.28 per share, and issued to the investors warrants to purchase
45,000 shares of common stock at an exercise price of $41.45 per share.
The warrants are exercisable until February 22, 2009. The total
proceeds of the sale were $10,584,000, and the Registrant paid Merriman
Curhan Ford & Co. a commission of 5.5% of such proceeds, or $582,120.
The securities were sold and issued pursuant to the exemption under
Rule 506 of Regulation D under the Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
31.1 Certification of the Chief Executive Officer required by
Rule 13a-14(a) or Rule 15d-14(a).
31.2 Certification of the Chief Financial Officer required by
Rule 13a-14(a) or Rule 15d-14(a).
32.1 Certification of the Chief Executive Officer required by
Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
32.2 Certification of the Chief Financial Officer required by
Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
(b) Reports on Form 8-K.
Current Report on Form 8-K, dated August 17, 2003, reporting
under Item 5 that the Registrant had completed the sale of
700,000 shares of its common stock at $29.50 per share and the
issuance of warrants to purchase 105,000 shares of its commons
stock at $34.66 per share for a total purchase price of
$20,650,000.
Current Report on Form 8-K, dated August 22, 2003, reporting
under Item 5 that the Registrant had completed the sale of
300,000 shares of its common stock at $35.28 per share and the
issuance of warrants to purchase 105,000 shares of its commons
stock at $41.45 per share for a total purchase price of
$10,584,000.
Current Report on Form 8-K, dated September 9, 2003, reporting
under Item 5 that the Registrant had entered into a North
American Distributor Agreement with Objet Geometries, Ltd.
Current Report on Form 8-K, dated August 22, 2003, reporting
under Item 9 that the Registrant issued a press release
announcing its second quarter 2003 earnings.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 2003 STRATASYS, INC.
By: /s/ THOMAS W. STENOIEN
----------------------------------------
Thomas W. Stenoien
Executive Vice President, Secretary and
Chief Financial Officer
(Principal Financial Officer)
19