SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended March 31, 2002
OR
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______________ to_________________
Commission file number 1-13400
STRATASYS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-3658792
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or 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)
Check whether the registrant: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
past 90 days. Yes X No
As of May 10, 2002, the Registrant had 5,356,854 shares of Common
Stock, $.01 par value, outstanding.
STRATASYS, INC.
Index
Page
Part I. Financial Information
Item 1. Financial Statements .......................................................................... 1
Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001...................... 1
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the three months ended March 31, 2002 and 2001.......................................... 2
Consolidated Statements of Cash Flows for the three months ended
March 31, 2002 and 2001..................................................................... 3
Notes to Financial Statements............................................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 5
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K..................................................................... 11
Signatures.................................................................................................... 12
(i)
ITEM 1. FINANCIAL STATEMENTS
STRATASYS, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2002 2001
(UNAUDITED)
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,116,702 $ 10,211,398
Accounts receivable, less allowance for returns and
doubtful accounts of $559,123 in 2002 and $562,888 in 2001 9,344,972 12,132,738
Inventories 8,255,746 6,877,582
Prepaid expenses 279,647 558,879
Deferred income taxes 541,826 246,000
------------ ------------
Total current assets 27,538,893 30,026,597
------------ ------------
PROPERTY AND EQUIPMENT, net 5,838,573 6,006,529
------------ ------------
OTHER ASSETS
Intangible assets, net 3,204,906 3,288,222
Deferred income taxes 2,363,000 2,363,000
Other 134,673 266,997
------------ ------------
5,702,579 5,918,219
------------ ------------
$ 39,080,045 $ 41,951,345
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Obligations under capitalized leases $ 97,955 $ 130,320
Mortgage payable, current portion 56,029 54,994
Accounts payable and other current liabilities 3,012,219 3,736,284
Unearned maintenance revenue 4,661,499 4,510,751
------------ ------------
Total current liabilities 7,827,702 8,432,349
------------ ------------
MORTGAGE PAYABLE, less current portion 2,201,590 2,215,983
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, authorized 15,000,000
shares, issued 6,465,591 shares in 2002 and
6,133,294 shares in 2001 64,656 61,333
Capital in excess of par value 34,739,829 32,943,974
Retained earnings 1,072,680 1,797,606
Accumulated other comprehensive loss (79,211) (72,084)
Less cost of treasury stock, 1,111,237 shares in 2002
and 740,400 shares in 2001 (6,747,201) (3,427,816)
------------ ------------
Total Stockholders' Equity 29,050,753 31,303,013
------------ ------------
$ 39,080,045 $ 41,951,345
============ ============
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STRATASYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended March 31,
-------------------------------
2002 2001
(unaudited) (unaudited)
----------- -----------
SALES $ 6,396,389 $ 8,687,689
COST OF GOODS SOLD 2,450,135 3,589,213
----------- -----------
GROSS PROFIT 3,946,254 5,098,476
COSTS AND EXPENSES
Research and development 1,142,268 1,214,216
Selling, general and administrative 3,677,208 3,548,463
----------- -----------
4,819,476 4,762,679
----------- -----------
OPERATING INCOME (LOSS) (873,222) 335,797
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 42,919 112,617
Interest expense (46,294) (10,935)
Other (137,284) (173,715)
----------- -----------
(140,659) (72,033)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (1,013,881) 263,764
INCOME TAXES (BENEFIT) (288,955) 65,946
=========== ===========
NET INCOME (LOSS) $ (724,926) $ 197,818
=========== ===========
EARNINGS PER COMMON SHARE
Basic $ (0.14) $ 0.04
=========== ===========
Diluted $ (0.14) $ 0.04
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic 5,363,165 5,473,994
=========== ===========
Diluted 5,363,165 5,473,994
=========== ===========
COMPREHENSIVE INCOME (LOSS)
NET INCOME (LOSS) $ (724,926) $ 197,818
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment (7,127) (17,033)
----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (732,053) $ 180,785
=========== ===========
-2-
STRATASYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
----------------------------
2002 2001
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (724,926) $ 197,818
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Deferred taxes (295,826) 61,787
Depreciation 360,545 353,223
Amortization 111,060 143,430
Increase (decrease) in cash attributable to
changes in assets and liabilities
Accounts receivable 2,787,766 2,513,589
Inventories (1,378,164) 8,486
Prepaid expenses 279,232 94,415
Other assets 132,324 (43,237)
Accounts payable and other current liabilities (724,065) (1,246,724)
Unearned maintenance revenue 150,748 561,370
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 698,694 2,644,157
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of machinery and equipment (192,589) (249,868)
Payments for intangible assets (27,744) (133,660)
------------
NET CASH USED IN INVESTING ACTIVITIES (220,333) (383,528)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of obligations under capitalized leases (32,365) (53,274)
Purchase of treasury stock (3,319,385)
Payments of mortgage payable (13,358)
Net proceeds from the sale of common stock 1,799,178
------------
NET CASH USED IN FINANCING ACTIVITIES (1,565,930) (53,274)
------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (7,127) (17,033)
------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,094,696) 2,190,322
CASH AND CASH EQUIVALENTS, beginning of period 10,211,398 6,737,306
------------
CASH AND CASH EQUIVALENTS, end of period $ 9,116,702 $ 8,927,628
============ ============
SEE NOTES TO 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 months ended March
31, 2002, 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, 2001, 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 March 31 and December 31,
respectively:
2002 2001
Finished Goods $ 5,148,936 $ 4,539,943
Work in process 124,376
Raw materials 2,982,434 2,337,639
---------- ----------
Totals $ 8,255,746 $ 6,877,582
========== ==========
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 $2,500,000, 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 March 31, 2002 and 2001, there were no
differences between the reported basic and diluted shares outstanding.
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
General
We develop, manufacture, and market a family of rapid prototyping devices
that enable engineers and designers to create physical models, tooling and
prototypes out of plastic and other materials directly from a computer aided
design ("CAD") workstation. Historically, our growth has come from sales to a
number of industries, including automotive, consumer products, electronics,
medical, and aerospace. Universities, other educational institutions, and
service bureaus have also been significant markets for us. Our current and
future growth is largely dependent upon our ability to penetrate new markets and
develop and market new rapid prototyping devices and applications that meet the
needs of our current and prospective customers. We intend to focus our new
product development on various rapid prototyping devices, modeling materials,
and software enhancements. We anticipate that in 2002 our primary business
strategy will focus on expanding international and domestic sales of our
existing family of rapid prototyping devices, while maintaining on-going
development of new rapid prototyping equipment, modeling materials, and
software.
We introduced Dimension, our new 3-D printer in February 2002. Dimension
offers ABS modeling capabilities in a 3-D Printer platform. The part output from
competitive 3-D printers has tended to be extremely fragile. Dimension allows
users to create parts from ABS, which offers part strength required of true
form, fit and function testing. We believe that Dimension, introduced at a
selling price of $29,900, is the lowest priced system in the rapid prototyping
market. A small number of Dimensions were shipped in December 2001, prior to the
February 2002 public announcement. Commercial shipments of Dimension systems
commenced in February 2002.
In March 2002, we introduced the Prodigy Plus. This system incorporates
our WaterWorks soluble support system on the Prodigy platform, and is further
enhanced by the addition of our Insight software that offers speed and
performance improvements over those of our Benchtop systems. Commercial
shipments are expected to commence in May 2002.
Despite the successful introduction of the Dimension, where both orders and
shipments exceeded our expectations, net revenue in the first quarter of 2002
was significantly below both our internal expectations and the amounts recorded
in the first quarter of 2001 and the fourth quarter of 2001. Gross unit
shipments in the first quarter of 2002 declined to 52 units from 66 gross unit
shipments in the first quarter of 2001. Sales of our high-end systems were
particularly weak. Certain regions were also weak, including the Far East. While
we normally expect the Far East to constitute approximately 25% of revenue,
sales to the Far East amounted to approximately 17% in the first quarter. The
central region of the United Sates, dominated by the automotive industry, and
the west region recorded revenues and bookings that were below expectations.
Total bookings in the quarter, however, did meet plan, and allowed us to
significantly expand backlog beyond the December 31, 2001, level. The backlog as
of March 31, 2002, included both Dimensions and high-end systems that we expect
to ship in the second quarter of 2002.
Gross profits increased to 61.7% of sales in the first quarter of 2002 from
58.7% in the first quarter of 2001. Gross margins in the current quarter
increased due to lower write-offs for scrap and inventory adjustments, and a
higher proportion of non-system revenue that carries favorable margins. The
gross margin percentage reported in the current quarter is at the higher end of
our expected range. We do not believe we will be able to sustain gross margins
at this percentage of revenue in the next several quarters. Future gross
margins should be expected to fall at the lower end of a range of 58% to 61% of
revenues, recognizing that our gross margins are heavily impacted by product
mix and sales volume. We assume that sales of our high-end systems will recover
from the levels reported in the first quarter of 2002. These are projections
and actual results may differ materially from those projected.
Our strategy in 2002 is to expand our position in the 3-D printing market
and our core rapid prototyping businesses. We anticipate that we will continue
to control our expenses while we expand our revenue growth. We
5
believe that the 3-D printing market represents a significant growth area and
that the introduction of Dimension will have a significant positive impact on
our 2002 results. However, we remain fully committed to the continued growth of
our historic core business, which is represented by our Maxum, Titan, Prodigy
Plus, and FDM 3000 systems. We also believe that our service, consumable, and
maintenance revenues derived from all our systems will also improve over the
results attained in 2001. Our ability to implement our strategy is subject to
numerous uncertainties, many of which are described in this Management's
Discussion and Analysis and in the section below captioned "Forward Looking
Statements and Factors That May Affect Future Results of Operations." We cannot
ensure you that our efforts will be successful.
In addition to the uncertainly of future revenues from new or existing
products, we expect expenses associated with the launch of Dimension to result
in increases to SG&A expenses over the run rates recorded over the past several
quarters. Many of these expenses will be incurred before we will be able to
recognize significant revenue from sales of Dimension. Therefore, we expect that
our operating margins will be negatively impacted in the first half in 2002 as
compared with 2001. Additionally, depending upon product mix, there could be a
negative impact on gross margins throughout the year, since gross margins are
not consistent across all product lines.
Our operating results could also be adversely affected if the downturn in
general economic conditions experienced by most capital equipment manufacturers
in 2001 were to continue in 2002. Our expense levels are based in part on our
expectations of future revenues. Our planning assumes that the economic
conditions affecting capital equipment manufacturers will not decline from the
levels of 2001, and will slowly improve by mid-2002. If general economic
conditions should worsen or the recovery takes longer than we expect, the
revenues we recognize could be severely impacted. Additionally, our backlog at
the beginning of the year was limited, and will have a minimal effect on our
2002 results. These factors may lead to operating losses in certain quarters,
and reduced operating and gross profits as compared with the results reported in
2001. While we have adjusted, and will continue to adjust, our expense levels
based on revenues, fluctuations in revenues and product mix in a particular
period could adversely impact our operating results.
We believe that the rapid prototyping industry is growing at approximately
5-10% per year and that 3D printers and office modelers account for more than
30% of the total units of rapid prototyping systems shipped. Furthermore, we
believe the 3-D Printing segment of this market is the fastest growing component
of the market, and that our Dimension system, based upon price and performance,
is positioned to capture an increased share of this market. We believe that
there is a long-term trend toward lower-priced rapid prototyping 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 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,
throughput, part quality, part durability, and rapid tooling, which should allow
growth to continue for higher priced rapid prototyping systems such as our Maxum
and Titan systems that address these needs.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2002 COMPARED WITH QUARTER ENDED MARCH 31, 2001
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.
-6-
Check these and change
For the quarters ended March 31,
2002 2001
Net sales 100.0% 100.0%
Cost of sales 38.3 % 41.3%
Gross margin 61.7 % 58.7%
Selling, general, and administrative expenses 57.5% 40.8%
Research & development expense 17.9% 14.0%
Operating income (loss) (13.7%) 3.9%
Other income (loss) (2.2%) (.8%)
Income (loss) before taxes (15.9%) 3.0%
Income taxes (benefit) (4.5%) .8%
Net income (loss) (11.3%) 2.3%
Net Sales
Net sales for the quarter ended March 31, 2002 were $6,396,389, compared
with sales of $8,687,689 for the quarter ended March 31, 2001. This represents a
decrease of $2,291,300, or 26.4%. Dimension sales were very strong and exceeded
our internal expectations, but were not sufficient to offset the shortfall in
sales of our high-end systems. Of our high-end systems, Titan demonstrated the
most strength, but was still below expectations. Revenues from maintenance
increased in the quarter ended March 31, 2002 as compared with the same 2001
period. Maintenance revenue was enhanced by the larger installed base of systems
and continued emphasis on the sale of maintenance contracts.
We shipped 52 systems in first quarter of 2002 compared with 66 systems in
first quarter of 2001. The average selling price of our systems decreased in the
current quarter as compared with same period in 2001, and was significantly
influenced by sales of our Dimension systems coupled with the shortfall in sales
of our high-end systems. Product mix can dramatically affect the average selling
price in any period.
Domestic sales accounted for approximately 55% of total revenue in the
first quarter of 2002, down from approximately 60% recorded in the first quarter
of 2001. In the United States, the central region recorded the highest revenue,
but below expectations. Europe accounted for approximately 26% of total revenue
in 2002, an improvement from the 23% of revenue recorded in the first quarter of
2001. Our combined Asia-Pacific region, which comprises Japan, China, the Far
East and India, accounted for approximately 17% of total revenue, down from
approximately 19% attained in 2001. We believe that 2002 sales into our Asia
Pacific and United States regions will improve gradually throughout the year and
that the European regions will remain strong. However, declining economic
conditions in any of these regions could adversely impact our future sales and
profitability.
GROSS PROFIT
Gross profit decreased to $3,946,254, but increased to 61.7% of sales, in
the quarter ended March 31, 2002, compared with $5,098,476, or 58.7% of sales,
in the quarter ended March 31, 2001. This represents a decrease of $1,152,222,
or 22.6%. Gross profit declined due to lower revenues, especially in our
high-end systems, and lower scrap and obsolescence inventory write-offs. The
improvement to gross profit as a percentage of sales was principally due to an
increase in the proportion of revenues derived from non-system sales that carry
favorable margins, coupled with manufacturing overhead expenses incurred but
capitalized due to the shortfall in system sales in the quarter. We expect that
in the next several quarters, gross profits as a percentage of sales should fall
at the lower end of a range of 58% to 61%, but is highly dependent upon sales
mix and volumes. Our actual results could differ, however.
7
OPERATING EXPENSES
SG&A expenses increased to $3,677,208 for the quarter ended March 31, 2002,
from $3,548,463 for the quarter ended March 31, 2001. This represents an
increase of $128,745, or 3.6%. Marketing and sales expenses associated with the
Dimension product launch accounted for most of the increase in the quarter ended
March 31, 2002, as compared with same quarter in 2001. We expect SG&A expenses
to be somewhat higher than comparative year-over-year quarters for the next
several quarters, primarily due to expected expenses associated with the
Dimension product launch. Our actual results could differ, however.
R&D expenses declined to $1,142,268 for the quarter ended March 31, 2002
from $1,214,216 for the quarter ended March 31, 2001. The decrease amounted to
$71,948, or 5.9%. The control over our R&D expenses in light of rising salary
and benefit expenses reflects our goal to control operating expenses. Future
trends in R&D should reflect expense levels reasonably consistent with the
results reported in the first quarter of 2002, although modest fluctuations due
to the timing of certain expenses or to the completion of certain projects could
impact the results in any given quarter.
Our operating loss for the quarter ended March 31, 2002 amounted to
$873,222, or 13.7% of sales, compared with operating income of $335,797, or 3.9%
of sales, for the quarter ended March 31, 2001.
OTHER INCOME (EXPENSE)
Other expense netted to $140,659 in the quarter ended March 31, 2002
compared with other expense of $72,033 in the quarter ended March 31, 2001.
Interest income declined to $42,919 in the quarter ended March 31, 2002 compared
with $112,617 in the same quarter in 2001. The reduction in interest income was
primarily due to the reduction in interest rates that commenced in 2001.
Interest expense increased to $46,294 in the quarter ended March 31, 2002 from
$10,935 in the same quarter of 2001, primarily due to interest expense on the
mortgage of our manufacturing facility. In the quarter ended March 31, 2002, we
recognized a loss of approximately $137,300 on foreign currency transactions
related to the Euro, which compared with a loss of approximately $173,700 in the
same quarter of 2001.
NET INCOME (LOSS)
For the reasons cited above, the net loss for the first quarter of 2002
amounted to $724,926, or 11.3% of sales, compared with net income of $197,818,
or 2.3% of sales, in the comparable 2001 quarter. This resulted a loss per share
of $.14 in the quarter ended March 31, 2002, compared with income per diluted
common and common equivalent share of $.04 for the quarter ended March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities in the quarter ended March 31, 2002, provided cash of
$698,694, primarily reflecting a decrease in accounts receivable and prepaid
expenses of $2,787,766 and $279,232, respectively, and an increase to unearned
maintenance revenues of $150,748. Strong collections of our fourth quarter
receivables, including large remittances from several of our international
distributors, contributed to the reduction in accounts receivable. Unearned
maintenance revenues increased as a result of continued selling emphasis and
larger installed base of customers. In the quarter ended March 31, 2002, our net
loss, increase in inventories, and reduction of accounts payable and other
current liabilities, used cash of $724,926, $1,378,164, and $724,065,
respectively. Our inventories increased because of fewer than anticipated
shipments of our high-end systems, as we order materials and manufacture systems
based on a modified build-to-forecast process. Accounts payable and other
current liabilities were reduced as we used cash to pay down end of year
liabilities and current purchases of inventory. Operating activities provided
cash of $2,644,157 in the quarter ended March 31, 2001, primarily reflecting our
net income of $197,818, a reduction of accounts receivable of $2,513,589, and
increases in unearned maintenance revenues of $561,370. A decrease in accounts
payable and other current liabilities used cash of $1,246,724.
Our investing activities used cash of $220,333 in the quarter ended March
31, 2002, reflecting the acquisition of machinery and equipment of $192,589 and
payments for intangible assets, including patents, of $27,744. Our
8
investing activities used cash of $383,528 in the quarter ended March 31, 2001,
including $249,868 for the acquisition of machinery and equipment and $133,660
for payments for intangible assets, including patents.
Our financing activities used cash of $1,565,930, which included purchases
of outstanding stock for an aggregate of $3,319,385, and for payments of
obligations under capital leases of $32,365. We purchased 370,837 outstanding
shares in the quarter ended March 31, 2002. Net proceeds from the sale of common
stock pursuant to the exercise of employee and director options provided cash of
$1,799,178, which represented 332,297 shares exercised. In the quarter ended
March 31, 2001, our financing activities used cash of $53,274 for repayments
under capitalized leases.
The net decrease in cash in the quarter ended March 31, 2002, for the
reasons cited above, amounted to $1,094,696. In the comparable 2001 quarter, the
net increase in cash amounted to $2,190,322. Our ending cash and cash
equivalents balance as of March 31, 2002 and 2001 was $9,116,702 and $8,927,628,
respectively.
In 2002 we expect to use our cash for working capital purposes; for
improvements to our manufacturing facility; for new product development and
sustaining engineering; for the acquisition of equipment, including production
equipment, tooling, and computers; for the purchase of intangible assets,
including patents; for increased selling and marketing activities, especially as
the relate to the Dimension product launch and market development; and for our
common stock buyback program. While we believe that the primary source of
liquidity in 2002 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 March 31, 2002, we had gross accounts receivable of $9,904,095, less
an allowance of $559,123 for returns and doubtful accounts. Historically, our
bad debt expense has been minimal. However, at March 31, 2002, large balances
were concentrated with certain international distributors. Default by one or
more of these distributors would result in a significant charge against our
current earnings. 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 $27,538,893 at March 31, 2002, the
majority of which consisted of cash, cash equivalents, inventories and accounts
receivable. Total current liabilities amounted to $7,827,702. Our debt is
minimal, consisting of a mortgage payable of $2,257,619 and principal payments
due under a capital lease of $97,955. We will pay off the capital lease by the
end of 2002. We estimate that we will spend approximately $1,300,000 in 2002 for
facility improvements, production and R&D equipment, computers and integrated
software, and tooling. As of March 31, 2002, material commitments for inventory
purchases from selected vendors for the ensuing twelve-month period ending March
31, 2003 should amount to approximately $2,500,000. 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
Prior to 2001, substantially all of our recognized revenues from foreign
sales were invoiced in United States dollars. Therefore, our exposure to foreign
currency exchange rates was immaterial. Commencing in late 2000 and continuing
throughout 2001, we began to invoice sales to certain European distributors in
euros. Our reported results have been subject to fluctuations based upon changes
in the exchange rates of these currencies in relation to the United States
dollar. We have hedged using forward foreign exchange contracts in both the
second and third quarters of 2001, although both involved relatively small
positions. We will continue to monitor our exposure to currency fluctuations,
and, when appropriate, may use financial hedging techniques in the future.
Instruments to hedge our risks may include foreign currency forward, swap, and
option contracts. These instruments will be used to selectively manage risk but
there can be no assurances that we will be fully protected against material
foreign currency fluctuations. Translation exposure to our balance sheet with
respect to foreign operations is not hedged.
9
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.
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
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 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, services and consumables, our ability to
maintain our gross margins on these sales, and our plans and objectives to
introduce new products, control expenses, improve the quality and reliability of
our systems, and improve profitability. The forward-looking statements included
herein are based on current expectations that involve a number of risks and
uncertainties. These forward-looking statements are based on assumptions, among
others, that we (1) will be able to continue to introduce new rapid prototyping
systems and materials acceptable to the market and improve our existing
technology and software in our current product offerings, (2) will be able to
successfully launch the new Dimension product, and that the market will accept
this product, (3) will be able to maintain our revenues and gross margins on our
present products, (4) will be able to control our operating expenses, (5) will
be able to expand our manufacturing capabilities to meet the expected demand
generated by Dimension, and (6) will be able to retain and recruit employees
with the necessary skills to produce, develop, market, and sell our products.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive, market and technology conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Although we believe that
the assumptions underlying the forward-looking statements contained herein are
reasonable, any of those assumptions could prove inaccurate, and therefore there
is and can be no assurance that the results contemplated in any such
forward-looking statement will be realized. The impact of actual experience and
business developments may cause us to alter our marketing plans, our capital
expenditure budgets, or our engineering, selling, manufacturing or other
budgets, which may in turn affect our results of operations or the success of
our new product development and introduction. Due to the factors noted above and
elsewhere in the Management's Discussion and Analysis of Financial Condition and
Results of Operations, our future earnings and stock price may be subject to
significant volatility, particularly on a quarterly basis. Additionally, we may
not learn of revenue or earnings shortfalls until late in a fiscal quarter,
since we frequently receive the majority of our orders very late in a quarter.
This could result in an immediate and adverse effect on the trading price of our
common stock. Past financial performance should not be considered a reliable
indicator of future performance, and investors should not use historical trends
to anticipate results or trends in future periods.
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K.
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 14, 2002 STRATASYS, INC.
By: /s/Thomas W. Stenoien
------------------------
Thomas W. Stenoien
Chief Financial Officer
(Principal Financial Officer)
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