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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended June 30, 2001
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 August 8, 2001, the Registrant had 5,473,994 shares of Common Stock,
$.01 par value, outstanding.
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STRATASYS, INC.
Index
Page
----
Part I. Financial Information
Item 1. Financial Statements .......................................... 1
Consolidated Balance Sheets as of June 30, 2001 and December 31,
2000........................................................... 1
Consolidated Statements of Income and Comprehensive Income
for the six months ended June 30, 2001 and 2000................. 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and 2000................................... 3
Notes to Financial Statements.................................. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 6
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders............ 13
Item 6. Exhibits and Reports on Form 8-K............................... 13
Signatures................................................................. 14
(i)
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
STRATASYS, INC.
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------------------------------------
June 30, December 31,
2001 2000
(unaudited)
----------------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 8,811,322 $ 6,737,306
Accounts receivable, less allowance for returns and
doubtful accounts of $537,318 in 2001 and $500,372 in 2000 10,177,357 11,496,515
Inventories 8,946,048 9,102,818
Prepaid expenses 574,231 673,230
Deferred income taxes 229,000 229,000
------------ ------------
Total current assets 28,737,958 28,238,869
------------ ------------
Property and equipment, net 2,760,850 2,905,620
------------ ------------
Other assets
Intangible assets, net 3,537,521 3,521,561
Deferred income taxes 2,490,380 2,687,000
Other 160,788 228,681
------------ ------------
6,188,689 6,437,242
------------ ------------
$ 37,687,497 $ 37,581,731
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Obligations under capitalized leases, current portion $ 145,144 $ 187,692
Accounts payable and other current liabilities 2,887,660 3,719,309
Unearned maintenance revenue 4,769,401 4,318,335
------------ ------------
Total current liabilities 7,802,205 8,225,336
------------ ------------
Obligations under capitalized leases, less current portion 64,459 130,320
------------ ------------
Stockholders' equity
Common Stock, $.01 par value, authorized 15,000,000
shares, issued 6,125,994 shares
in 2001 and 2000 61,260 61,260
Capital in excess of par value 32,907,547 32,907,547
Accumulated deficit (101,452) (715,579)
Accumulated other comprehensive loss (68,145) (48,776)
Less cost of treasury stock, 652,000 shares in 2001
and 2000 (2,978,377) (2,978,377)
------------ ------------
Total stockholders' equity 29,820,833 29,226,075
------------ ------------
$ 37,687,497 $ 37,581,731
============ ============
See notes to financial statements.
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STRATASYS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------------------------------------------------------------------------------------------------------
Sales $ 9,223,715 $ 9,023,247 $17,911,404 $18,321,254
Cost of goods sold 3,691,577 3,071,631 7,280,790 6,463,923
----------- ----------- ----------- -----------
Gross profit 5,532,138 5,951,616 10,630,614 11,857,331
Costs and expenses
Research and development 1,273,445 1,736,610 2,487,661 3,277,819
Selling, general and administrative 3,708,746 3,888,016 7,257,209 7,816,057
----------- ----------- ----------- -----------
4,982,191 5,624,626 9,744,870 11,093,876
----------- ----------- ----------- -----------
Operating income 549,947 326,990 885,744 763,455
----------- ----------- ----------- -----------
Other income (expense)
Interest income 91,914 156,141 204,531 273,406
Interest and other expense (86,749) (16,138) (271,399) (33,063)
----------- ----------- ----------- -----------
5,165 140,003 (66,868) 240,343
----------- ----------- ----------- -----------
Income before income taxes 555,112 466,993 818,876 1,003,798
Income taxes 138,803 140,099 204,749 301,140
----------- ----------- ----------- -----------
Net income $ 416,309 $ 326,894 $ 614,127 $ 702,658
=========== =========== =========== ===========
Earnings per common share
Basic $ 0.08 $ 0.06 $ 0.11 $ 0.13
=========== =========== =========== ===========
Diluted $ 0.08 $ 0.06 $ 0.11 $ 0.12
=========== =========== =========== ===========
Weighted average number of common
shares outstanding
Basic 5,473,994 5,559,379 5,473,994 5,561,942
=========== =========== =========== ===========
Diluted 5,478,324 5,777,553 5,476,269 5,832,340
=========== =========== =========== ===========
COMPREHENSIVE INCOME (LOSS)
Net income $ 416,309 $ 326,894 $ 614,127 $ 702,658
Other comprehensive loss
Foreign currency translation adjustment (2,336) (1,234) (19,369) (28,247)
----------- ----------- ----------- -----------
Comprehensive income $ 413,973 $ 325,660 $ 594,758 $ 674,411
=========== =========== =========== ===========
See notes to financial statements.
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STRATASYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------------------------------
Six Months Ended June 30,
2001 2000
(unaudited) (unaudited)
-------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 614,127 $ 702,658
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes 196,620 291,894
Depreciation 702,161 603,891
Amortization 310,203 180,047
Loss on disposal of assets 27,161
Increase (decrease) in cash attributable to
changes in assets and liabilities
Accounts receivable 1,319,158 1,742,905
Inventories 156,770 (2,202,485)
Prepaid expenses 98,999 (106,792)
Other assets 67,893 16,480
Accounts payable and other current liabilities (831,649) (2,773)
Unearned maintenance revenue 451,066 257,853
----------- -----------
Net cash provided by operating activities 3,112,509 1,483,678
----------- -----------
Cash flows from investing activities
Purchases of marketable securities, net (94,850)
Acquisition of machinery and equipment (586,911) (516,787)
Proceeds from the sale of assets 2,359
Payments for intangible assets (326,163) (393,876)
----------- -----------
Net cash used in investing activities (910,715) (1,005,513)
----------- -----------
Cash flows from financing activities
Repayments of obligations under capitalized leases (108,409) (127,537)
Net proceeds from the sale of common stock 59,077
Repurchase of treasury stock (296,038)
----------- -----------
Net cash used in financing activities (108,409) (364,498)
----------- -----------
Effect of exchange rate changes on cash (19,369) 11,361
----------- -----------
Net increase in cash 2,074,016 125,028
Cash and cash equivalents, beginning of period 6,737,306 2,532,359
----------- -----------
Cash and cash equivalents, end of period $ 8,811,322 $ 2,657,387
=========== ===========
See notes to financial statements.
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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 six months ended
June 30, 2001, 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, 2000, filed as part of the
Company's Annual Report on Form 10-K for such year.
Note 2 -- Inventories
Inventories consisted of the following at June 30 and December 31,
respectively:
2001 2000
Finished Goods $4,790,570 $3,597,770
Work in process 18,757
Raw materials 4,136,721 5,505,048
---------- ----------
Totals $8,946,048 $9,102,818
========== ==========
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 $2,250,000, some
of which contain non-cancellation clauses.
Note 4 -- Income per common share
The difference between the number of shares used to compute basic income
per share and diluted income per share relates to additional shares to be issued
upon the assumed exercise of stock options and warrants, net of shares
hypothetically repurchased at the average market price with the proceeds of
exercise. For the six months ended June 30, 2001 and 2000, the additional
shares amounted to 2,275 and 270,397, respectively. For the three months ended
June 30, 2001 and 2000, the additional shares amounted to 4,330 and 218,124,
respectively.
Note 5 -- Subsequent event
On August 1, 2001, the Company purchased its current manufacturing
facility in Eden Prairie, Minnesota. The building consists of 62,100 sq. ft. The
purchase price amounted to $2,990,000, of which $2,287,500 was paid for with
proceeds received from a five-year mortgage loan from a financial institution.
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Note 6 -- Pending adoption of accounting standard
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No.'s 141 and 142, "Business
Combinations" and "Goodwill and Other Intangibles". SFAS 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under SFAS 142, effective the first quarter of the year
ending December 31, 2002, goodwill is no longer subject to amortization over its
estimated useful life. Rather, goodwill is subject to at least an annual
assessment for impairment applying a fair-value based test. Additionally, an
acquired intangible asset should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirer's intent to do so. The Company's management believes
that there is no material impact of these pronouncements on its financial
position and results of operations.
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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 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. New product developments
will focus on various rapid prototyping devices, modeling materials, and
software enhancements. In 2001 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 and introduction of
new rapid prototyping equipment, modeling materials, and software.
In May 2001, we introduced the FDM Titan(TM). Titan offers the capability
to produce prototypes in a polycarbonate (PC) material that offers superior
characteristics of heat and chemical resistance and durability for functional
testing. We began commercial shipments of the FDM Titan in June 2001. We also
announced that we expect to introduce additional high performance materials such
as polyphenylsulfone (PPSF) in the future. Titan is the third new product that
we have introduced in the past year, following the May 2000 introduction of
Prodigy(TM) and the November 2000 introduction of the FDM Maxum(TM) that
featured WaterWorks(TM).
As a result of declining sales and profitability in 2000, in January 2001
we reduced our head count of employees and contractors by approximately 8%.
This reduction in our workforce should result in reduced operating expenses of
approximately $2 million in 2001, some of which have been realized in the first
six months of this year. The remaining expense reductions should be realized
somewhat evenly throughout the balance of the year. However, our total
operating expenses could vary in a particular quarter based on project
completions and other anticipated obligations, so quarterly operating expenses
can be expected to vary in the remainder of 2001. While we believe that
profitability will improve in 2001 as compared with 2000 as a result of
continued operating expense control, we can give no assurance that we will
realize these 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. We believe that
there is a long-term trend toward lower priced rapid prototyping systems capable
of producing functional prototypes, and that a sizable market exists for concept
or visualization 3D printers. This pricing trend should lead to growth in the
more traditional functional prototyping marketplace as companies continue to
address in-house rapid prototyping and concept-modeling needs. Certain market
segments in the industry have not demonstrated 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 addressing these
needs.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2001 COMPARED WITH QUARTER ENDED JUNE 30, 2000
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 income.
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For the quarters ended June 30,
2001 2000
Net sales 100.0% 100.0%
Cost of sales 40.0% 34.0%
Gross margin 60.0% 66.0%
Selling, general, and administrative expenses 40.2% 43.1%
Research & development expense 13.8% 19.2%
Operating income 6.0% 3.6%
Other income (expense) .1% 1.6%
Income before taxes 6.0% 5.2%
Income taxes 1.5% 1.6%
Net income 4.5% 3.6%
NET SALES
Net sales for the quarter ended June 30, 2001 were $9,223,715, compared
with net sales of $9,023,247 for the quarter ended June 30, 2000. This
represents an increase of $200,468, or 2.2%. Sales of the FDM Titan and Prodigy
systems were particularly strong in the quarter. Maintenance revenue also
increased in the three months ended June 30, 2001 as compared with the same 2000
period. Maintenance revenue was enhanced by the larger installed base of systems
and continued emphasis on the sale of maintenance contracts.
Our gross shipments of systems amounted to 70 systems in the quarter
compared with 67 systems in same quarter of 2000. System sales included gross
shipments of all systems, including trade-in and upgrade systems. The average
selling price of our systems declined slightly in the quarter ended June 30,
2001, as compared with same 2000 period, in part caused by product mix shifts.
Product mix can affect the average selling price in any period. Our second
quarter backlog declined sequentially from that of the first quarter of 2001,
and was below that of the comparable quarter in 2000.
Domestic sales accounted for approximately 50% of total revenue in the
second quarter of 2001, which declined from the approximately 60% recorded in
the second quarter of 2000. In the United States, the east region recorded the
highest revenue. Europe accounted for approximately 20% of total revenue in the
second quarter of 2001, an improvement from approximately 18% of revenue
recorded in the comparable 2000 period. Our combined Asia-Pacific region, which
comprises Japan, China, the Far East and India, accounted for approximately 27%
of total revenue, a significant improvement from the 21% attained in 2000.
GROSS PROFIT
Gross profit declined to $5,532,138, or 60.0% of sales, in the quarter
ended June 30, 2001, compared with $5,951,616, or 66.0% of sales, in the quarter
ended June 30, 2000. This represents a deterioration of $419,478, or 7.0%. Gross
profit decreased due to a shift in our product mix to lower-priced systems,
increased overhead expenses, and write-offs of approximately $90,000 of
inventory for obsolescence and scrap.
OPERATING EXPENSES
SG&A expenses decreased to $3,708,746 for the quarter ended June 30, 2001,
from $3,888,016 for the quarter ended June 30, 2000. This represents a decrease
of $179,270, or 4.6%. The January 2001 headcount reductions impacted the SG&A
overhead expenses, including salaries and benefits expenses. Variable expenses
such as contract labor and travel expenses, were also down in the period ended
June 30, 2001, as compared with the period
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ended June 30, 2001, whereas legal expenses were higher. Amortization expense
resulting from previously capitalized software expenses derived from the FDM
Titan development increased in the second quarter of 2001 as compared with 2000.
R&D expenses declined to $1,273,445 for the quarter ended June 30, 2001
from $1,736,610 for the quarter ended June 30, 2000. The decrease in 2001
compared with the 2000 period amounted to $463,165, or 26.7%. R&D expenses were
significantly impacted by our January 2001 downsizing, which resulted in a large
reduction to R&D salary, benefits, and contract labor expenses in the period
ended June 30, 2001, as compared with the same 2000 period.
Our operating income for the quarter ended June 30, 2001 amounted to
$549,947, or 6.0% of sales, compared with operating income of $326,990, or 3.6%
of sales, for the quarter ended June 30, 2000. This represents an increase of
$222,957, or 68.2%.
OTHER INCOME (EXPENSE)
Other income and expense netted to $5,165 in the period ended June 30, 2001
compared with $140,003 in 2000. Interest income declined to $91,914 in the
quarter ended June 30, 2001, as compared with $156,141 in the same 2000 period.
This was the result of lower interest rates on our investments. Interest and
other expense amounted to $86,749 in the current period from approximately
$16,138 in the period ended June 30, 2000, primarily reflecting a loss on
foreign currency related to the Euro.
NET INCOME
For the reasons cited above, net income for the quarter ended June 30, 2001
amounted to $416,309, or 4.5% of sales, compared with net income of $326,894, or
3.6% of sales, in the same 2000 period. This resulted in income per diluted
common share of $.08 for the quarter ended June 30, 2001, as compared with
income per diluted common share of $.06 for the quarter ended June 30, 2000.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000
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 income.
For the six months ended June 30,
2001 2000
Net sales 100.0% 100.0%
Cost of sales 40.6% 35.3%
Gross margin 59.4% 64.7%
Selling, general, and administrative expenses 40.5% 42.7%
Research & development expense 13.9% 17.9%
Operating income 4.9% 4.2%
Other income (expense) (.4)% 1.3%
Income before taxes 4.6% 5.5%
Income taxes 1.1% 1.6%
Net income 3.4% 3.8%
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NET SALES
Net sales for the six months ended June 30, 2001 were $17,911,404,
compared with net sales of $18,321,254 for the six months ended June 30, 2000.
This represents a decrease of $409,850, or 2.2%. Our Benchtop systems continued
to constitute the largest component of our sales mix in the current six month
period. Prodigy sales were also strong throughout the period, while sales of
the FDM Titan aided the backend of the current period. Consumable and
maintenance revenue also increased in the six months ended June 30, 2001 as
compared with the same 2000 period. Maintenance revenue was enhanced by the
larger installed base of systems and continued emphasis on the sale of
maintenance contracts.
Our gross shipments of systems amounted to 136 systems in the six month
period of 2001 compared with 143 systems in same period of 2000. System sales
included gross shipments of all systems, including trade-in and upgrade
systems. The average selling price of our systems declined slightly in the six
months ended June 30, 2001, as compared with same 2000 period, in part caused
by product mix shifts. Product mix can significantly affect the average selling
price in any period.
Domestic sales accounted for approximately 52% of total revenue in the six
months ended June 30, 2001, which declined from the approximately 60% recorded
in the comparable 2000 period. In the United States, domestic sales have been
sluggish, with the east region showing the greatest strength. Europe accounted
for approximately 21% of total revenue in the six months ended June 30, 2001.
Revenues were aided in Europe by the decline in the value of the Euro since the
beginning of the year. Revenues recorded from Europe showed a significant
improvement over the results recorded in the six months ended June 30, 2000,
when European sales amounted to 16% of total sales. Our combined Asia-Pacific
region, which comprises Japan, China, the Far East and India, accounted for
approximately 23% of total revenue in the six months ended June 30, 2001, an
improvement from the 20% attained in 2000. We believe that 2001 sales into our
Asia Pacific and European regions will remain strong for the remainder of the
year, and that domestic sales will improve in the second half. No assurances,
however, can be given that future sales and profitability will not be adversely
impacted by the economic conditions of these regions.
GROSS PROFIT
Gross profit declined to $10,630,614, or 59.4% of sales, in the six months
ended June 30, 2001, compared with $11,857,331, or 64.7% of sales, in the six
months ended June 30, 2000. This represents a deterioration of $1,226,717, or
10.3%. Gross profit decreased due to a shift in our product mix to lower-priced
systems, increased labor and overhead expenses, and inventory write-offs of
approximately $220,000 for obsolescence and scrap.
OPERATING EXPENSES
SG&A expenses decreased to $7,257,209 for the six months ended June 30,
2001, from $7,816,057 for the comparable period ended June 30, 2000. This
represents a decrease of $558,848, or 7.1%. The January 2001 head count
reductions impacted the SG&A overhead expenses, which reduced salaries and
benefits expense. Variable expenses, such as contract labor and travel expenses,
were also down in the six month period ended June 30, 2001, as compared with the
period ended June 30, 2000. Legal expenses were higher in the current period, as
was amortization expense that resulted from capitalized software expenses.
R&D expenses declined to $2,487,661 for the six months ended June 30, 2001,
from $3,277,819 for the comparable period ended June 30, 2000. The decrease in
2001 compared with the 2000 period amounted to $790,158, or 24.1%. R&D expenses
were significantly impacted by our January 2001 downsizing, which resulted in a
large reduction to R&D salary, benefits, and contract labor expenses in the six
month period ended June 30, 2001, as compared with the same 2000 period.
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Our operating income for the six months ended June 30, 2001 amounted to
$885,744, or 4.9% of sales, compared with operating income of $763,455, or 4.2%
of sales, for the six months ended June 30, 2000. This represents an increase
of $122,289, or 16.0%.
OTHER INCOME (EXPENSE)
Other income and expense netted to ($66,868) in the six months ended June
30, 2001 compared with $240,343 in 2000. Interest income declined to $204,531
in the six months ended June 30, 2001, as compared $273,406 in with the same
2000 period. This was principally the result of lower interest rates on our
investments. Interest and other expense amounted to $271,399 in the current
period from approximately $33,063 the period ended June 30, 2000, primarily
reflecting a loss on foreign currency transactions related to Euro conversions.
NET INCOME
For the reasons cited above, net income for the six months ended June 30,
2001 amounted to $614,127, or 3.4% of sales, compared with net income of
$702,658, or 3.8% of sales, in the same 2000 period. This resulted in income per
diluted common share of $.11 for the six months ended June 30, 2001, as compared
with income per diluted common share of $.12 for the period ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the period ended June 30, 2001, provided cash of
$3,112,509, primarily reflecting our net income of $614,127, a decrease to
accounts receivable of $1,319,158, and an increase to unearned maintenance
revenues of $451,066. Cash collections on our accounts receivable were strong in
the first half of 2001, and unearned maintenance revenues increased as a result
of renewed selling emphasis and larger installed base of customers. Payments of
our accounts payable and other current liabilities used cash of $831,649 in the
same period. Operating activities for the period ended June 30, 2000, provided
cash of $1,483,678, primarily reflecting our net income of $702,658, and a
decrease to our accounts receivable of $1,742,905. Increases to our inventories
used cash of $2,202,485 in the same 2000 period. Our investing activities used
cash of $910,715 in the first half of 2001, primarily reflecting the acquisition
of machinery and equipment and for payments of intangible assets of $586,911 and
$326,163, respectively. In the first half of 2000, we used $1,005,513 of cash in
our investing activities, including $516,787 for the acquisition of machinery
and equipment and $393,876 for the purchase of intangible assets. Financing
activities used $108,409 of cash for payments of obligations under capital
leases in the first half of 2001. In the first half of 2000, financing
activities used cash of $364,498, which included payments of $127,537 for
obligations under capital leases, and $296,038 for the repurchase of our common
stock. The net increase in cash, for the reasons cited above, amounted to
$2,074,016 in 2001 compared with a net increase in cash of $125,028 for the same
period in 2000.
Our ending cash and cash equivalents balances at June 30, 2001 totaled
$8,811,322. This cash will be used for working capital purposes, for the
purchase and improvement of our manufacturing facility, for new product
development, for acquisition of production equipment and tooling, for computers,
for increased selling and marketing activities, and for R&D. Additionally, we
may continue our common stock buyback program, although we did not purchase any
of our common stock in the six months ended June 30, 2001. While we believe that
the primary source of liquidity in 2001 will be derived from current cash
balances and cash flows from operations, we have opened 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 June 30, 2001, we had gross accounts receivable of $10,714,675, less
an allowance of $537,318 for returns and doubtful accounts. Historically, our
bad debt expense has been minimal. However, at June 30, 2001, large balances
were concentrated with certain international distributors. Default by one or
more of these distributors
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would result in a significant charge against our current reported 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 $28,737,958 at June 30, 2001, the
majority of which consisted of cash, cash equivalents, inventories and accounts
receivable. Total current liabilities amounted to $7,802,205. Our debt is
minimal, consisting primarily of principal payments due under capital leases of
$209,603. We estimate that we will spend approximately $1,200,000 in 2001 for
facility improvements, production and R&D equipment, computers and integrated
software, and tooling. In addition, the down payment for the purchase of our
current manufacturing facility amounted to approximately $725,000, and closed on
of August 1, 2001. As of June 30, 2001, material commitments for inventory
purchases from selected vendors for the ensuing twelve-month period ending June
30, 2002 should amount to approximately $2,250,000. We intend to finance these
purchases from existing funds 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
Throughout most of 2000, substantially all of our recognized revenues were
invoiced in United States dollars. Therefore, our exposure to foreign currency
exchange rates was immaterial. Commencing in October 2000, we began invoicing
revenues in foreign currencies, primarily in Euros. Therefore, our operating
results could be subject to fluctuations based upon changes in the exchange
rates of these currencies in relation to the United States dollar. In the second
quarter of 2001, we started using financial hedging techniques to minimize the
effects of these fluctuations. We hedged using a forward foreign exchange
contract for 200,000 Euros and settled all within the quarter. 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. Most of our revenue is still expected to be derived from areas 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, estimates or believes or other similar
words are forward-looking statements deemed by us to be covered by and to
qualify for the safe harbor protection covered by the safe harbor protection
provided by the Private Securities Litigation Reform Act of 1995 (the "1995
Act"). Investors and prospective investors in 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 rapid prototyping systems and services,
our ability to maintain our gross margins on these sales, and our plans and
objectives to introduce new products, control expenses, and improve
profitability. The forward-looking statements included herein are based on
current expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions, among others, that we (1)
will be able to continue to introduce new rapid prototyping systems acceptable
to the market and improve existing technology and software in our current
product offerings, (2) will be able to maintain our gross margins on our present
products, (3) will be able to control our operating expenses, and
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(4) will be able to retain and recruit employees with the necessary skills to
produce, develop, market, and sell our products. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive, market and technology conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of those assumptions could prove inaccurate, and therefore, there is and can be
no assurance that the results contemplated in any such forward-looking statement
will be realized. The impact of actual experience and business developments may
cause us to alter our marketing plans, our capital expenditure budgets, or our
engineering, selling or other budgets, which may in turn affect our results of
operations or the success of our 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our Annual Meeting of Stockholders on May 8, 2001. The following
Directors, constituting all of the Directors of the Company, were elected at
the meeting to serve as Directors until their successors are duly elected and
qualified. The Directors elected at the Annual Meeting received the number of
votes set forth opposite their respective names:
Votes Cast
--------------------------------
For Withheld
Election Authority/Abstained
-------- -------------------
Scott Crump 5,385,892 51,733
Ralph E. Crump 5,386,842 50,783
Clifford H. Schwieter 5,390,592 47,033
Cameron Truesdel 5,391,442 46,183
Arnold J. Wasserman 5,389,892 47,733
Gregory L. Wilson 5,390,642 46,983
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: August 14, 2001 STRATASYS, INC.
By: /s/ Thomas W. Stenoien
-----------------------------------
Thomas W. Stenoien
Chief Financial Officer
(Principal Financial Officer)