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As filed pursuant to Rule 424(b)(1)
Registration No. 033-99108
PROSPECTUS
STRATASYS, INC.
404,900 Shares of Common Stock
This Prospectus pertains to up to 404,900 shares (the "Shares") of common
stock, $.01 par value per share (the "Common Stock"), of Stratasys, Inc., a
Delaware corporation (the "Company"), that may be sold by the Selling
Securityholders named herein (the "Selling Securityholders"). The Shares
include (i) 141,516 currently outstanding shares of Common Stock held by
certain of the Selling Securityholders, and (ii) up to 263,384 authorized but
unissued shares of Common Stock which may be acquired by the Selling
Securityholders upon the exercise of warrants and options. See "PRINCIPAL AND
SELLING SECURITYHOLDERS."
Of the Shares offered hereby, (a) 7,726 Shares are issuable or have been
issued upon the exercise of warrants issued in November and December 1993 to
R.J. Steichen & Co., Inc. ("Steichen"), as placement agent in connection with
the Company's issuance of an aggregate $600,000 in principal amount of
promissory notes (the "Bridge Notes"); (b) 41,877 Shares are issuable or have
been issued upon the exercise of warrants issued in November and December 1993
to purchasers of the Bridge Notes; (c) 85,000 Shares are issuable upon the
exercise of options to purchase 50,000 shares of Common Stock granted in May
1995 and 35,000 shares of Common Stock granted in July 1995 to Salvani
Investments, Inc., as compensation for investment consulting services; and (d)
270,297 Shares are issuable or have been issued upon the exercise of warrants
issued, to (i) accredited investors in August 1995 pursuant to a private
offering exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), and (ii) to accredited investors and
non-United States investors in November 1995 pursuant to a private placement
exempt from the registration requirements of the Securities Act. See "PRINCIPAL
AND SELLING SECURITYHOLDERS." The Company will not receive any of the proceeds
from the sale of the Shares by the Selling Securityholders, but the Company will
receive the proceeds from any exercise of the options and warrants. The
registration of the Shares offered hereby is being effected pursuant to
registration rights granted by the Company to the Selling Securityholders and,
in accordance with the terms of such rights, the Company will bear the expenses
of such registration, except that the Selling Securityholders will bear the cost
of all brokerage commissions and discounts incurred in connection with the sale
of their Shares and their respective legal expenses.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 15, 1996.
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Commencing on the effective date of this Prospectus, the Shares may be
sold, from time to time, by the Selling Securityholders directly to purchasers
or, alternatively, may be offered through agents, brokers, dealers or
underwriters, who may receive compensation in the form of concessions or
commissions from the Selling Securityholders or purchasers of the Shares.
Sales of the Shares may be made on The Pacific Stock Exchange Incorporated (the
"PSE"), on the Nasdaq National Market ("NASDAQ"), in privately negotiated
transactions or otherwise, and such sales may be made at the market price
prevailing at the time of sale, a price related to such prevailing market price
or a negotiated price.
Any brokers, dealers or agents that participate in the distribution of
the Shares may be deemed to be underwriters under Section 2(11) of the
Securities Act, and any commissions or discounts received by them on the resale
of such Shares may be deemed to be underwriting compensation under the
Securities Act. The sale of the Shares by the Selling Securityholders,
including sales effected by Brookehill Equities, Inc. on behalf of certain
Selling Securityholders, is subject to the prospectus delivery and other
requirements of the Securities Act. See "PLAN OF DISTRIBUTION."
-------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
-------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Seven World
Trade Center, New York, New York 10048, and at Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material may be
obtained, at prescribed rates, by writing to the Commission, Public Reference
Section, 450 Fifth Street, N.W. Washington, D.C. 20549. The Commission
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information
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regarding registrants that file electronically. In addition, copies of such
reports and other information concerning the Company may be inspected and
copied at the PSE, 301 Pine Street, San Francisco, California 94104.
The Company has filed with the Commission a Post-Effective Amendment to a
Registration Statement on Form SB-2, including all amendments thereto (the
"Registration Statement"), under the Securities Act with respect to the
securities offered hereby via the Electronic Data Gathering and Retrieval
System ("EDGAR"). This Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits thereto, as permitted by
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is hereby made to the
Registration Statement and the exhibits thereto or incorporated therein by
reference. The Registration Statement, including such exhibits, may be
inspected without charge at the public reference facilities maintained by the
Commission and at the SEC's regional offices at the addresses stated above.
Copies of these documents may be obtained, at prescribed rates, by writing to
the Commission's Public Reference Section at its office set forth above.
The Company furnishes its stockholders with annual reports which contain
financial statements audited by its independent certified public accounts and
such other interim reports containing unaudited financial information as it
deems appropriate.
The Company will provide, without charge to each person who receives this
Prospectus, upon written request, a copy of any information that is
incorporated by reference in the Prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are
themselves specifically incorporated by reference). Such requests should be
directed to the following address:
STRATASYS, INC.
14950 Martin Drive
Eden Prairie, Minnesota 55344-2020
Attention: Director of Finance
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PROSPECTUS SUMMARY
The following summary of information is qualified in its entirety by the
more detailed information and financial statements (including the notes
thereto) appearing elsewhere in this Prospectus.
THE COMPANY
The Company develops, manufactures and markets a family of rapid
prototyping devices that enable engineers and designers to create physical
models, tooling and prototypes out of plastic and other materials directly from
a computer aided design ("CAD") workstation. In many industries, the models
and prototypes required in product development are produced laboriously by
hand-sculpting or machining, a traditional process that can take days or weeks.
The Company's computerized modeling systems use its proprietary technology to
make models and prototypes more directly from a designer's three-dimensional
CAD in a matter of hours.
The Company believes that its patented fused deposition modeling
("FDM(R)") technology and new Genisys(TM) technology are the only rapid
prototyping systems commercially available that can produce parts from plastic
without relying on lasers. This affords the Company a number of significant
advantages over other commercially available three-dimensional rapid
prototyping technologies, which primarily rely on lasers to create models.
Such benefits include the ability to use the device in an office environment
due to the absence of hazardous emissions, the need for relatively little set
up of the system for a particular project, the availability of a variety of
modeling materials and the lack of any need for costly replacement lasers and
laser parts. The systems can also run virtually unattended, producing models
while designers perform other tasks.
The Company has been developing and improving its line of rapid
prototyping products since its inception in 1989. Since that time, the Company
has developed and sold the 3D Modeler, which was the Company's initial product,
a smaller benchtop version of the 3D Modeler called the FDM(R)1500 Benchtop,
introduced in June 1993, an improved benchtop modeler called the FDM(R)1600
Benchtop, introduced in November 1994, the Company's ProtoSlice operating
software package, and in some cases, a CAD workstation manufactured by SGI.
Although the Company has discontinued sales of the 3D Modeler, the FDM(R)1500
Benchtop, SGI workstations and, in early 1996, the FDM(R)1600 Benchtop system,
it continues to support and provide modeling materials for these systems. In
addition, the Company no longer sells ProtoSlice, although some of its current
customers continue to use ProtoSlice.
In March 1996, the Company introduced three new rapid prototyping
machines for commercial sale. Genisys(TM) is a 3D desktop printer which uses
rapid prototyping technology developed by International Business Machines
Corporation ("IBM") and purchased by the Company in 1995. It is useful for the
production of conceptual models employed in the early stages of the design
cycle, as it enables a designer to produce concept iterations at his desk
directly from a workstation in a simple push-button fashion. The FDM(R)1650
Benchtop, the latest in the Company's line of FDM(R) modelers, can produce
functional prototypes at three times the speed of its predecessor, the
FDM(R)1600 Benchtop, and can accommodate
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a variety of engineering modeling materials. The third new product, the
Stratasys 8000, is a rapid prototyping device, which incorporates the medulla
electronics and a portion of the front-end software technology of Genisys(TM)
and the filament extrusion method of the Company's FDM(R) products. It is
capable of building prototypes up to 24 inches in size at a through-put
approximately 600% faster than the Company's FDM(R)1600 Benchtop system. Like
the FDM(R)1650 Benchtop, the Stratasys 8000 can use several types of modeling
materials to generate prototypes. Distribution of the FDM(R)1650 Benchtop and
the Genisys(TM) machine began in March and June 1996, respectively, while
shipment of the Stratasys 8000 is expected to begin in the second quarter of
1997.
In 1994, the Company introduced its QuickSlice(R) operating software,
which is currently used with the FDM(R) 1650 and Stratasys 8000 machines. The
Genisys(TM) machine uses the Company's AutoGen(TM) software, which was
introduced in 1996.
The process involved in the development of a three-dimensional model
using the 3D Modeler, the FDM(R) Benchtop systems, or the Stratasys 8000 begins
with the creation of a conceptual geometric model on a CAD workstation. The
model is then imported into the ProtoSlice or QuickSlice(R) software program,
which mathematically slices the conceptual model into horizontal layers that
are downloaded into the system. These rapid prototyping machines basically
draw cross-sections of the model one layer at a time to create a
three-dimensional "blueprint." A spool of thin thermoplastic modeling material
feeds into a moving FDM(R) extrusion head, which heats the material to a
semi-liquid state. This semi-liquid material is then extruded and deposited in
ultra-thin flat layers on a base (the "X-Y Stage") in the modeling chamber. As
the material is directed into place by the computer-controlled head, layer upon
layer, the material solidifies, creating a precise and strong laminated model.
The Genisys(TM) modeling process is similar. Genisys(TM) uses
AutoGen(TM) software to slice the conceptual model created on a CAD workstation
into horizontal layers that are downloaded into Genisys(TM). Genisys(TM) then
uses wafers of modeling material, rather than spools of filament, to feed the
extrusion head. The extrusion head heats these wafers and, using a precision
hydraulic conical pump, deposits a continuous layer of plastic polymer beads
(much like squeezing toothpaste from a tube) onto the X-Y Stage to create a
three-dimensional model by building up layers. In comparison to the FDM(R)
Benchtop systems, due to its size, Genisys(TM) allows the prototype to be
created on a desktop, directly from a workstation, like a 3D printer.
Currently, the Company has five modeling materials commercially available
for model generation using its FDM(R) technology: a machinable wax, a tough
polyamide plastic polymer that is similar to nylon, an investment casting wax,
the hard polymer material ABS (named for its three initial monomers), which is
used commercially to make products such as telephones, and a medical grade ABS
(MABS), for medical applications. Each material has specific characteristics
that make it appropriate for various applications. The ability to use different
materials allows the user to match the material to the end use application of
the prototype, whether it is a pattern for tooling or a concept model.
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Genisys(TM) uses only one type of modeling material, a plastic polymer,
which is manufactured in the form of wafers. A total of 52 wafers are held in
a cassette, which allows the wafers to be fed into the machine and rapidly
extruded in layers.
The Company has positioned its products to be used as devices that
support CAD systems in a variety of manufacturing industries, including
automotive, aerospace, consumer products, electronics and medical applications.
They are also used in universities. Additional future applications may arise
in conceptual design, casting, precision prototypes, consumer packaging,
architectural design, rapid manufacturing of small-volume custom parts and fit,
form and function testing, secondary tooling, and mold-making. NASA is
currently using the FDM(R)1600 Benchtop system and plans to build spare parts
in space, thereby reducing the inventory of parts in a space flight payload.
The Company was incorporated in Delaware on August 8, 1989. The
Company's executive offices are located at 14950 Martin Drive, Eden Prairie,
Minnesota 55344-2020; Telephone number (612) 937- 3000; facsimile number (612)
937-0070.
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock Offered . . . . . . . . . . . . . . 404,900 (1)
Shares of Common Stock Outstanding:
before the Offering . . . . . . . . . . . . . . . . . 5,498,654 (2)
after the Offering . . . . . . . . . . . . . . . . . . 5,768,591 (3)
</TABLE>
The Shares may be offered to the public from time to time by the Selling
Securityholders directly or through underwriters, dealers or agents in market
transactions or through privately negotiated transactions.
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(1) Includes (i) an aggregate of 141,516 shares of Common Stock currently
outstanding and (ii) 263,384 shares of Common Stock that may be acquired
by Selling Securityholders upon the exercise of options and warrants and
subsequently resold pursuant to the registration statement of which this
Prospectus is a part. See "PRINCIPAL AND SELLING SECURITYHOLDERS" and
"CERTAIN TRANSACTIONS."
(2) As of October 14, 1996.
(3) Assumes the exercise of all options and warrants covered by this
Prospectus.
Use of Proceeds: The Company will not receive any proceeds from the sale
of the Shares by the Selling Securityholders, but the
Company will receive proceeds from the exercise of any
options and warrants. Although there can be no
assurance that any options or warrants will be
exercised, the Company would receive gross proceeds of
approximately $3,683,197 if all options and warrants
covered by this Prospectus were exercised.
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Risk Factors: The shares of Common Stock offered hereby are highly
speculative and involve a high degree of risk. In
addition to the other information in this Prospectus,
prospective purchasers of Common Stock should consider
carefully such risks, including, but not limited to,
losses from operations, competition, dependence on
current management, rapid and unpredictable
technological change and lack of dividends. See "RISK
FACTORS."
Nasdaq National
Market Symbol: SSYS
Pacific Stock
Exchange Symbol: SAS
Summary Financial Information
The following summary financial information has been derived from, and
should be read in conjunction with, the Company's financial statements and
related notes and management's discussion and analysis included elsewhere in
this Prospectus. See "Financial Statements."
Statement of Operations Data:
<TABLE>
<CAPTION>
Six Months Ended Year ended December 31,
June 30, 1996 1995 1994 1993
-------------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $8,069,344 $10,275,186 $3,790,828 $2,358,288
Cost of Sales 2,778,704 3,906,841 1,612,121 1,087,125
Gross Profit 5,290,640 6,368,345 2,178,707 1,271,103
Expenses 4,954,258 6,227,267 3,279,403 2,300,141
Income (Loss) from Operations 336,382 141,078 (1,100,696) (1,029,038)
Net Income (Loss) 583,074 371,024 (1,133,769) (1,047,106)
Net Income (Loss) Per Share .10 0.09 (0.69) (.93)
Balance Sheet Data:
Total Assets $23,238,207 $19,895,268 $6,808,030 $1,550,184
Total Liabilities 3,148,146 2,373,056 984,922 2,063,280
Working Capital 14,466,178 12,640,320 5,091,295 432,526
Stockholders' Equity 20,090,061 17,522,212 5,823,908 (513,096)
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</TABLE>
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RISK FACTORS
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A
HIGH DEGREE OF RISK. IN ADDITION TO OTHER INFORMATION CONTAINED IN OR
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS, THE FOLLOWING RISKS SHOULD BE
CONSIDERED CAREFULLY BY EACH PROSPECTIVE PURCHASER BEFORE MAKING AN INVESTMENT
IN THE COMPANY.
LIMITED OPERATING HISTORY. The Company was incorporated in August 1989
and completed its initial public offering ("IPO") in October 1994. Since its
incorporation, the Company has developed and sold the 3D Modeler, its initial
product introduced in April 1992, a smaller benchtop version of the 3D-Modeler
called the FDM(R)1500 Benchtop, introduced in June 1993, an improved benchtop
modeler called the FDM(R)1600 Benchtop, introduced in November 1994, and three
new products, the Genisys(TM), the FDM(R)1650 Benchtop and the Stratasys 8000,
introduced in March 1996. The Company faces the risks and problems associated
with businesses in their early stages and has a limited operating history upon
which an evaluation of its prospects can be made. Such prospects should be
considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a business in a new industry characterized
by a number of market entrants and intense competition and in the shift from
the development to commercialization of new products based on innovative
technologies. See "BUSINESS -- Current Applications of Rapid Prototyping" and
"-- Competition."
LACK OF AND LIMITED PROFITABILITY. Although the Company had an operating
profit of $336,382 for the six months ended June 30, 1996, and an operating
profit of $141,078 for its fiscal year ended December 31, 1995, it incurred net
losses of $1,133,769 and $1,047,106, for the fiscal years ended December 31,
1994 and 1993, respectively. The ability of the Company to generate revenues
and to remain profitable depends on many factors, including future growth of
its business, the ability of the Company to secure new customers and develop
and sell new products, the ability of management to control costs and
successfully implement the Company's business strategy and the ability of the
Company to manufacture and deliver products in a timely manner. There can be
no assurance that the Company will be successful in generating future revenues
or in becoming or remaining profitable. In addition, the Company will continue
to have a high level of operating expenses and to expend substantial amounts on
research and development. See "MANAGEMENT'S DISCUSSION AND ANALYSIS" AND
"FINANCIAL STATEMENTS."
In the future, the Company's operating results and profitability may
depend on and fluctuate as a result of a number of factors including the degree
of acceptance of its new technology and products by potential customers,
increased competition, difficulties or delays in new product introduction or
development, operating costs, economic conditions and the timing of orders
from, and shipments to, major customers. The Company's operating results may
vary in part due to the introduction of new products and enhancements and
continuing research and development expenditures. Operating results may be
adversely affected if revenues do not meet the Company's expectations in any
given quarter.
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UNCERTAIN MARKET FOR COMPANY PRODUCTS. While the Company believes that
its current systems are and its future systems will be highly effective at
developing high resolution, three-dimensional prototypes and models, the
Company's FDM(R) rapid prototyping technology was first introduced, in 1992,
and its Genisys(TM) System was first introduced in early 1996. Therefore, the
Company has had only a limited period to determine market acceptance of its
products. See "RISK FACTORS--Limited Operating History." In addition, having
begun in approximately 1990, the rapid prototyping industry is in the early
stages of development. Successful development of a significant market for
rapid prototyping equipment by the Company and market penetration of such a
market will require education, training, and broad acceptance of the Company's
current and future products by manufacturing engineers and designers. There can
be no assurance that a significant market for the Company's products can be
developed or sustained. See "BUSINESS--Marketing, Distribution and Customers"
and "--Competition."
DEPENDENCE ON A SINGLE LINE OF BUSINESS. Although the Company markets
products that can be used in all stages of the design cycle, its line of
products consists of closely interdependent products (modeling devices,
software, and modeling filament or wafers) in a single field (rapid
prototyping) based on proprietary and patented FDM(R) or Genisys(TM)
technology. For the foreseeable future, the Company plans to continue to
pursue this business strategy. The inability of the Company's products to be
widely accepted in the rapid prototyping field could lead to reduced sales and
increased expenditures on research and development for new applications in
other fields. There can be no assurance that such efforts to diversify the
Company's products into other fields would be successful. As a consequence,
the prospects of the Company and the future value of an investment in the
Common Stock will be dependent on the success of its products in the rapid
prototyping field. See "BUSINESS -- Products" and "-- Potential Future
Applications."
ADDITIONAL WORKING CAPITAL REQUIREMENTS. From the date of its formation
through June 30, 1996, the Company incurred net losses of approximately
$3,964,300. Even though the Company earned a profit for the year ended
December 31, 1995 and for the six months ended June 30, 1996, and as of June
30, 1996 had cash reserves of approximately $10,000,000, there can be no
assurance that the Company will remain profitable or that it will not once
again incur losses. If the Company does incur losses, it may need additional
debt or equity financing to fund its operations or it may have to apply
existing cash reserves to operations and defer its current marketing and
research and development efforts. Any such deferral may have an adverse effect
on the Company. There can be no assurance that the Company will be able to
obtain additional financing, if needed, or on terms favorable to the Company,
if available. See "MANAGEMENT'S DISCUSSION AND ANALYSIS."
DEPENDENCE ON PROPRIETARY TECHNOLOGY. Proprietary technology is
important to the Company in the development and manufacturing of its products.
The Company seeks to protect its technology through a combination of patents,
copyrights, trade secrets, proprietary know-how and confidentiality agreements.
In June 1992, the Company's President, Scott Crump, was issued a patent, which
was subsequently assigned to the Company, covering 44 claims on its products,
various aspects of FDM(R)
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technology and the associated modeling process. On August 24, 1994, Mr. Crump
was issued a second patent covering additional aspects of the FDM(R)
technology, that he also assigned to the Company. In connection with the
purchase of assets from IBM in January 1995, the Company acquired three patents
and seven patent applications by IBM relating to the Company's Genisys(TM)
technology. There can be no assurance that these patents will not be
circumvented or invalidated, that additional patents will be granted, that
proprietary information will be maintained or that the Company will be able to
maintain a meaningful technological advantage. The Company could incur
substantial costs in seeking enforcement of its patent rights against
infringement or the unauthorized use of its proprietary technology by others or
in defending itself against similar claims of others. Insofar as the Company
relies on trade secrets and proprietary know-how to maintain its competitive
position, there can be no assurance that others may not independently develop
similar or superior technologies or gain access to the Company's secrets or
know- how. Prior to the Company's incorporation, a patent infringement study
was conducted in 1988 to determine whether any other parties infringed or
claimed rights to its technology. No such infringement or claims were found,
and no further study has been conducted since 1988. There can be no assurance,
however, that such claims of infringement will not be asserted. Defending
against such claims could have the effect of depleting the Company's resources,
and the Company's inability to defend successfully against any such claim could
impair the Company's ability to manufacture its products. See "BUSINESS-
- -Intellectual Property."
NEED FOR PRODUCT ENHANCEMENT AND DEVELOPMENT. Although the market for
rapid prototyping equipment has emerged only recently, the industry has made
quick advances in technology. Accordingly, the Company's ability to compete in
this market may depend, in large part, on its success in enhancing its existing
product lines and in developing new products. In addition, the Company cannot
determine how long a product will be on the market, and it may develop new
technologies for products that could render its current products obsolete or
could be sold at lower prices. Thus far, production of the Company's first
three products, the 3D Modeler, the FDM(R)1500 Benchtop and the FDM(R)1600
Benchtop, has been discontinued, and those products have been replaced by the
FDM(R)1650 Benchtop. In addition, the Company developed and has begun
marketing Genisys(TM), which uses a different technology, and the Stratasys
8000, which uses a combination of the FDM(R) technology and the Genisys(TM)
technology. Even though the introduction of each subsequent FDM(R) product to
date has been accompanied by an increase in revenue, the introduction of these
new, cost-effective products and any future cost-effective products could cause
the Company's net income from sales to decline, notwithstanding an increase in
sales volume. There can be no assurance that the Company will succeed in its
efforts to develop additional new products or that any of its products will not
be rendered obsolete or uneconomical by technological advances made by others
or by the Company itself. See "BUSINESS--Products," "--Research and
Development," and "--Competition."
COMPETITION. The Company believes that there are currently no companies
engaged in the commercial production of products using the FDM(R) process.
However, various companies currently offer, or are developing, rapid
prototyping devices which utilize alternative technologies. Some of these
companies have significantly greater financial, product development,
manufacturing and marketing
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<PAGE> 11
resources than the Company. Rapid prototyping is an emerging field, and the
market for rapid prototyping devices cannot now be determined with any degree
of precision. In addition, traditional methods of producing models and
prototypes, such as machining and hand-sculpting, continue to be widely used.
No assurance can be given that the Company will be able to compete successfully
against current and future sources of competition or that the competitive
pressures faced by the Company will not adversely affect its profitability or
financial performance. See "BUSINESS--Competition."
DEPENDENCE ON KEY PERSONNEL. The development of new products and
advancements of existing products are dependent to a significant extent on the
abilities and efforts of the Company's President, Scott Crump, and a small
number of other persons. The loss of any of these persons could adversely
affect the timing or success of such development. On October 20, 1994, Scott
Crump signed a three-year employment contract with the Company. Mr. Crump is
covered by key-man insurance in the amount of $1,200,000, and the Company is
the beneficiary of the policy. No other employee has entered into a written
employment agreement with the Company. The success of the Company will also
depend on, among other factors, the successful recruitment and retention of key
personnel.
NO DIVIDENDS ANTICIPATED. No cash dividends have been paid on shares of
the Company's Common Stock since its inception, and none are contemplated in
the foreseeable future. The Company intends to retain any earnings to fund its
planned research, development, operations and marketing.
NO ASSURANCE OF ACTIVE OR CONTINUED PUBLIC MARKET. Although a public
trading market for the Common Stock currently exists, there can be no assurance
that such trading market will provide significant liquidity with regard to the
Common Stock or that such market will be sustained.
USE OF DISTINCTIVE MATERIALS AND INGREDIENTS; INVENTORY OBSOLESCENCE.
The Company is dependent on the ability to purchase distinctive materials and
ingredients for its rapid prototyping technology, particularly for the
filaments and wafers used by the Company's systems. Certain Company vendors
are chosen based upon the unique properties of the material that they supply
and upon their ability to demonstrate through extensive testing and
reformulations that such materials are the most suitable to both the Company's
manufacturing processes as well as to FDM(R) compatibility. Other vendors
supply off-the- shelf components that are specifically compounded according to
Company specifications, such compounds being Company trade secrets. Although
the Company historically has been able to purchase these materials from a
number of vendors at prices favorable to the Company, there can be no assurance
that the Company will be able to do so in the future. Furthermore, the loss of
a vendor for vendor-specific formulations would require retesting and
recertification of any new vendor. A shortage of these materials, the
inability to obtain them from the Company's usual vendors or the need to
purchase them at higher prices could have an adverse effect on the Company's
operations and delay product deliveries. See "BUSINESS--Manufacturing."
The Company maintains an inventory of components for its equipment in
order to provide replacement parts. Although the Company believes that it will
realize its investment in inventory and
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<PAGE> 12
to date has not had any material loss of inventory as a result of obsolescence,
no assurance can be given that demand for replacement parts will continue or
that the component inventory will not become obsolete and, therefore, be of
little or no value.
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS. Presently, Scott
Crump, Lisa Crump and Ralph Crump and the current officers and directors of the
Company and their affiliates (collectively, the "Affiliates") beneficially own
approximately 18.8% of the Company's issued and outstanding Common Stock.
Consequently, the Affiliates will have the ability to influence the election of
all the Company's directors and to direct the affairs of the Company.
ADVERSE EFFECT OF PUBLIC SALES OF ADDITIONAL SHARES. As of the date of
this Prospectus, 1,380,000 shares of Common Stock have been sold to the public
by the Company pursuant to the registration statement filed in connection with
the Company's IPO; 450,555 shares of Common Stock were sold publicly by
stockholders under Rule 144 promulgated under the Securities Act; 1,277,121
shares of Common Stock became subject to sale to the public on January 25, 1996,
pursuant to a registration statement on Form SB-2, 872,221 shares of which have
been sold, and the remaining 404,900 shares of which may be sold hereby; and
400,000 shares of Common Stock became subject to sale to the public pursuant to
the Company's registration statement on Form S-3, which became effective on July
15, 1996, 331,247 shares of which have been sold and 68,753 shares of which may
be sold. In addition, a maximum of 800,000 shares of Common Stock are covered by
the Company's registration statement on Form S-8 (the "S-8 Registration
Statement"). Options to purchase all 800,000 shares covered by the S-8
Registration Statement have been granted, 281,927 of which have been exercised
and may be sold without restriction. Furthermore, the Board of Directors has
authorized, and the Company's stockholders have approved, an increase in the
number of shares that may be issued under the Company's 1994-2 Employee Stock
Option Plan from 500,000 to 1,000,000. The Company intends to file a
Registration Statement on Form S-8 to register the sale of those 500,000
additional shares, and to date, 136,652 of such shares have been granted and
become exercisable at various times through 2002.
In addition to the options described above, the Company has issued
warrants to purchase 64,355 shares of Common Stock that are not presently
exercisable and warrants to purchase 18,000 shares of Common Stock that are
presently exercisable, 5,000 of which may be exercised until November 11, 2000,
and 13,000 of which may be exercised until January 18, 2001. The warrants to
purchase 64,355 shares have one demand and certain piggyback registration
rights. Both of such warrants have piggyback registration rights.
There are also 1,978,294 shares of Common Stock issued and outstanding
that may be sold pursuant to Rule 144 under the Securities Act as follows: (i)
217,283 may presently be sold; (ii) 1,166,115 may be sold after October 20,
1996 subject to Rule 144 restrictions on sales by affiliates; (iii) 500,000
shares may be sold after January 1, 1997; (iv) 86,667 shares may be sold after
May 25, 1997; (v) 6,229 shares may be sold at various times during 1997, and
(vi) 2,000 shares may be sold after July 2, 1998.
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<PAGE> 13
The holder of the 500,000 shares described above also has piggyback
registrations rights exercisable after January 1, 1997, and two demand
registration rights exercisable after January 1, 1998.
If all of the above-described shares of restricted stock and stock
issuable upon the exercise of warrants and options are sold to the public, the
number of shares that have been or may be sold publicly will increase from
approximately 3,789,603 to approximately 6,496,977, or approximately 72% within
the next six years. The issuance of such additional shares may adversely affect
prevailing market prices for the Common Stock and may dilute the interests of
existing stockholders. Moreover, the terms upon which the Company will be able
to obtain additional equity capital may be adversely affected, because the
holders of such outstanding securities can be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in such
options and warrants. See "SHARES ELIGIBLE FOR FUTURE SALE" and "CERTAIN
TRANSACTIONS."
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE
PURCHASE OF SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. ANY
PERSON CONSIDERING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE
AWARE OF THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE SECURITIES
SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO ABSORB A TOTAL LOSS OF
THEIR INVESTMENT IN THE COMPANY AND HAVE NO NEED FOR A RETURN ON THEIR
INVESTMENT.
USE OF PROCEEDS
The Shares are being offered for sale solely by the Selling
Securityholders pursuant to certain demand and piggyback registration rights
granted to them by the Company. Accordingly, the Company will not receive any
proceeds from the sale of the Shares. The Company will, however, receive
aggregate proceeds of $3,683,197 if all warrants and options covering Shares
included in this Prospectus are exercised. The Company presently expects to
use the proceeds of such sales for working capital and other general corporate
purposes.
DIVIDEND POLICY
To date, the Company has not paid any dividends on its Common Stock. The
payment of dividends, if any, in the future, is within the discretion of the
Board of Directors and will depend on the Company's earnings, if any, its
capital requirements and financial condition and other relevant factors. The
Board of Directors does not intend to declare any cash dividends in the
foreseeable future, but instead intends to retain earnings, if any, for use in
the Company's business operations.
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<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996 and as adjusted to give effect to (i) the sale of 141,299 shares of
Common Stock sold in July and August, 1996, pursuant to the exercise of
employee stock options and (ii) the payment of notes receivable in the
aggregate principal amount of $1,946,000 in July and August 1996, in connection
with sale of 400,000 shares of Common Stock upon the exercise of certain
warrants in May 1996. This table should be read in conjunction with the
Company's Financial Statements and the related notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
---------------------------------------
Actual As Adjusted
----------- -----------
<S> <C> <C>
Obligations under capitalized leases, less current portion $ 112,123 $ 112,123
Stockholders' Equity
Common Stock, $.01 par value, 15,000,000 shares
authorized, 5,288,424 shares issued and outstanding (actual)
and 5,429,723 shares issued and outstanding (as adjusted) 52,884 54,297
Capital in excess of par value 25,947,474 26,752,606
Accumulated deficit (3,964,297) (3,964,297)
Notes due on common stock purchases (1,946,000) 0
----------- ----------
Total Stockholders' Equity 20,090,061 22,842,606
---------- ----------
Total Capitalization 20,202,184 22,954,729
========== ==========
</TABLE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has traded on the PSE under the symbol SAS and
on NASDAQ under the symbol SSYS since October 20, 1994. Prior thereto, there
was no public market for the Company's Common Stock.
The following table sets forth the approximate high and low NASDAQ bid
quotations and high and low PSE sale prices for the Common Stock for each
quarter since trading of the Company's Common Stock began on NASDAQ and on the
PSE.
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<PAGE> 15
<TABLE>
<CAPTION>
Bid Prices Sale Prices
---------- -----------
NASDAQ PSE
------ ---
Fiscal 1994 High Low High Low
----------- ---- --- ---- ---
<S> <C> <C> <C> <C>
October 20, 1994 - December 31, 1994 $5.625 $5.00 $5.50 $4.875
Fiscal 1995
-----------
January 1, 1995 - March 31, 1995 $7.00 $5.25 $6.75 $5.875
April 1, 1995 - June 30, 1995 $15.75 $6.625 $13.00 $3.00
July 1, 1995 - September 30, 1995 $17.875 $12.375 $15.00 $6.00
October 1, 1995 - December 31, 1995 $20.875 $14.75 $16.00 $9.00
Fiscal 1996
-----------
January 1, 1996 - March 31, 1996 $23.50 $12.25 $21.625 $20.875
April 1, 1996 - June 30, 1996 $21.375 $14.00 * *
July 1, 1996 - September 30, 1996 $24.875 $15.375 $24.875 $24.875
October 1, 1996 - October 14, 1996 $24.25 $17.375 * *
</TABLE>
* The PSE reported that no trading of the Company's Common Stock
occurred during these periods.
The foregoing information was provided by NASDAQ and the PSE. The
quotations reflect inter- dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
As of October 14, 1996, the closing bid price per share of Common Stock
was $17.375 on NASDAQ and $16.00 on the PSE, and the Company had approximately
145 holders of record of its Common Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto of the Company appearing elsewhere
in this Prospectus.
GENERAL
During 1995, the Company's principal focus was on continued marketing of
its Benchtop products, on refinements of the hardware and software of existing
product lines, especially as they affected ease
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<PAGE> 16
of use, on the development of new filament materials, and on the enhancement of
a desktop rapid prototyping machine (the "Desktop") that uses the technology
acquired from IBM in January 1995.
In 1995, the Company's sales growth was due to increased unit sales of
its FDM(R)-1600 Benchtop coupled with increased modeling material and
maintenance revenue. The Benchtop was introduced by the Company in 1994 and
featured dual-material and ABS modeling capabilities. By the end of 1995, the
Benchtop unit was the only rapid prototyping system that the Company marketed.
As a result of the assets acquired from IBM and the Company's R&D activities
throughout 1995, the Company, in early 1996, introduced three new products:
Genisys(TM), the FDM(R)-1650, and the Stratays-8000. Genisys(TM), which is a
3D push-button desktop printer, is a design tool for quick concept models used
early in the design cycle. It is the end product of the improvements that the
Company made on the Desktop throughout 1995. The new FDM(R)-1650, the latest
in the Company's Benchtop line, offers multiple engineering materials and a
300% improvement in the through-put of the Company's previous Benchtop systems.
Lastly, the Company introduced the Stratasys-8000, which is capable of building
larger prototypes than any of its existing products, and which features
multiple engineering material modeling capabilities coupled with a 600%
through-put improvement over the Company's previous systems. Shipments of
Genisys(TM) and the FDM(R) 1650 began in the first half of 1996, and shipment
of the Stratasys-8000 is expected to begin in the second quarter of 1997.
Management believes that these additions to its products should result in
continued revenue growth. Management also believes that a sizable market exists
for rapid prototyping machines that are appropriate and affordable for office
use and that these products will have the capacity to capture a significant
portion of the market.
The Company believes that its technology offers distinct advantages over
that of its competitors, and that its new products described above will be
successfully introduced in 1996. Management is uncertain, however, as to whether
the products will be introduced early enough to capture the market in 1996,
whether the rapid prototyping market will accept the Company's new products, and
whether the Company will be able to maintain its revenue growth.
Management believes that one of the trends in the market for rapid
prototyping systems is to lower- priced units (below $100,000), of which the
FDM(R)-1600 Benchtop was one of the first such systems introduced. The Company
is aware of at least one major competitor who has announced a low-priced rapid
prototyping system that appears to be competitive with Company's Benchtop and
Genisys(TM) systems for the lower-priced market. Other competitors may also
enter this market, to the detriment of the Company's future revenue growth.
The Company also believes that a market trend in prototype media appears to be
toward the use of ABS modeling material, which the Company's FDM(R) process can
deliver. Although the Company is not aware of other rapid prototyping systems
that offer ABS modeling capabilities, there can be no assurances that other
competitors will not develop this capability at any time.
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<PAGE> 17
After taking into account net interest income of $53,235, the Company
earned a profit of $48,998 in the third quarter of 1995. This was the first
quarterly profit for the Company. In the fourth quarter in 1995, the Company
recorded a profit of $494,911, which included net interest income of $137,423.
There is no assurance that the Company will continue to experience future
profitable quarters.
The Company has not experienced any significant inventory shortage,
excess or obsolescence problems, nor has the Company experienced material bad
debt or collection problems. The Company believes that it will also be able to
maintain control over its receivables and inventories, although it can give no
assurances.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 Compared With the Three Months Ended June 30,
1995
Sales for the three months ended June 30, 1996 totaled $5,316,879
compared with sales of $2,128,003 recorded in the three months ended June 30,
1995, an increase of $3,188,876, or 149.9%. Revenue for the second quarter of
1996 was the highest in the history of the Company. The increase over the
comparable 1995 period was largely attributable to the continued sales growth
of the Company's FDM(R) 1650 series of rapid prototyping systems. The FDM
1650, which was introduced in March 1996, replaced the FDM 1600 and offers
multiple engineering materials, including ABS, combined with significant
improvements in through-put. The Company also recorded revenue from its first
shipments of the Genisys 3D Printer, a product that was developed by IBM and
purchased by the Company in January 1995. Gross margins increased by
$2,142,858, or 164.4%, to $3,446,578 for the three months ended June 30, 1996,
from $1,303,720 for the three months ended June 30, 1995. As a percentage of
sales, gross margins improved to 64.8% for the three months ended June 30,
1996, as compared with 61.3% for the three months ended June 30, 1995. The
improvement to the Company's gross margin was largely due to reductions in
material costs combined with a higher selling price for the Company's FDM 1650
product. The cost reductions were achieved through both engineering design
changes as well as purchasing efficiencies. In addition to the cost reduction
to the material component of cost of goods sold, direct labor and manufacturing
overhead together equaled 8.7% of sales for the three months ended June 30,
1996, declining from 9.8% of sales for the three months ended June 30, 1995.
This reduction was largely volume related as the Company was able to
efficiently utilize its expanded manufacturing facility and spread its fixed
costs over a larger revenue base.
Selling, General and Administrative ("SG&A") expenses increased to
$2,141,540 for the three months ended June 30, 1996, from $868,030 in the
comparable 1995 period. This represents a $1,273,510, or 146.7%, increase in
SG&A expenses for the 1996 period as compared with the 1995 period. Selling
compensation and related payroll expense, including commissions earned on
higher sales, increased by 124.2% for the 1996 period as compared with the 1995
period. In 1995 the Company began to expand its domestic and international
sales staffs. This has continued into the second quarter of 1996. The Company
has also established a domestic distributor network for its Genisys
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<PAGE> 18
product. Non-selling compensation in SG&A increased by 231.2% for the three
months ended June 30, 1996 compared with the three months ended June 30, 1995,
as the Company added a Chief Operating Officer and a new product development
group. As a result of the expanded sales staff, higher sales activity, and new
product introductions, travel expenses increased by 55.5% to $199,268 for the
three months ended June 30, 1996 as compared to $128,133 in the same 1995
period. Promotional activities, recruiting, and amortization expenses
increased to $206,588, $52,307 and $147,230, respectively, for the three months
ended June 30, 1996, compared with $60,687, $27,979 and $48,341, respectively,
for the three months ended June 30, 1995. SG&A expenses were 40.3% of sales
for the three months ended June 30, 1996, compared with 40.8% for the three
months ended June 30, 1995.
Research and Development ("R&D") expenses increased to $843,246 for the
three months ended June 30,1996, from $513,161 for the three months ended June
30, 1995, a $330,085, or 64.3% increase. R&D compensation and payroll-related
expenses increased by 26.1% for the three months ended June 30, 1996 as
compared with the comparable 1995 period, while expenses for contract labor
increased by 209.3% in the same period. Travel expenses increased by 219.3% to
$85,061 for the three months ended June 30, 1996 as compared with $26,641 for
the three months ended June 30, 1995. Most of this travel was required to
coordinate the activities of the New York R&D facility with the Minneapolis
facility. Depreciation expense increased to $50,478 for the three months ended
June 30, 1996, from $22,689 for the comparable 1995, while tooling expense
declined by $38,321 in the 1996 period as compared with 1995. As a percentage
of sales, R&D expenses amounted to 15.9% and 24.1% of sales for the three
months ended June 30, 1996 and June 30, 1995, respectively. For the three
months ended June 30, 1996, the Company capitalized $234,693 of software
development costs, in accordance with FASB 86, as compared with $316,756 that
was capitalized for the comparable 1995 period. Total expenditures related to
the New York R&D facility amounted to $537,394 for the three months ended June
30, 1996. Of this, $213,023 was capitalized in accordance with FASB 86.
The Company's operating income for the three months ended June 30, 1996
amounted to $461,792 compared with an operating loss of $77,471 for the three
months ended June 30, 1995. Net interest income amounted to $111,119 for the
three months ended June 30, 1996, as compared with net interest income of
$18,164 for the comparable 1995 period.
The Company's net income for the three months ended June 30, 1996,
amounted to $572,911, or 10.8% of sales, compared with a net loss of $59,307,
or 2.8% of sales, for the comparable 1995 period. The earnings per share for
the three months ended June 30, 1996, amounted to $.10 on fully-diluted
weighted average number of common and common equivalent shares outstanding of
5,725,264 as compared with a loss per share of $.02 on weighted average number
of common and common equivalent shares outstanding of 3,393,534 for the 1995
period.
-18-
<PAGE> 19
Six Months Ended June 30, 1996 Compared With the Six Months Ended June 30, 1995
Sales for the six months ended June 30, 1996 increased to $8,069,344
compared with sales of $3,819,099 for the six months ended June 30, 1995, an
increase of $4,250,245, or 111.3%. While the FDM 1650 and associated software,
maintenance, and materials revenue accounted for the majority of this revenue
growth, the Company's reported revenue also benefited from the first sales of
its Genisys 3D Printer. Gross margins increased to $5,290,640 for the first six
months of 1996 from $2,370,203 for the comparable 1995 period, an increase of
$2,920,437, or 123.2%. Gross margin as a percentage of sales improved to 65.6%
of sales for the first six months of 1996 compared with 62.1% of sales for the
first six months of 1995. The improvement to the Company's gross margin was
largely due to reductions in material costs combined with a higher selling
price for the Company's FDM 1650 product. The cost reductions were achieved
through both engineering design changes as well as purchasing efficiencies.
Direct labor and manufacturing overhead increased to 9.2% of sales for the
first six months of 1996 compared with 8.6% for the first six months of 1995.
The Company was not able to fully benefit from its expanded manufacturing
facility until the second quarter of 1996. The Company's combined direct labor
and manufacturing overhead amounted to 8.7% of sales in the second quarter of
1996, a considerable improvement from the 10.1% recorded in the first quarter
of 1996.
SG&A expenses increased to $3,517,991 for the six months ended June 30,
1996 compared with $1,653,609 for the six months ended June 30, 1995, an
increase of $1,864,382, or 112.7%. The 112.7% increase in SG&A expenses for
the first half of 1996 slightly exceeded the revenue growth experienced by the
Company for the same period. Selling compensation and related payroll expense,
including commissions earned on higher sales, increased by 88.4% for the six
months ended June 30, 1996 as compared with the 1995 period. Non-selling
compensation in SG&A increased by 189.5% for the six months ended June 30, 1996
as compared with the six months ended June 30, 1995, as the Company added a new
Chief Operating Officer and a new product development group to its existing
staff. Due largely to the Company's expanded sales staff, the establishment of
a new dealer network, and higher sales activity, travel expenses increased by
52.0% to $376,484 for the first six months of 1996 from $247,655 for the
comparable 1995 period. Commissions earned by distributors increased to
$222,474 for the first six months of 1996 compared with $0 in the comparable
1995 period. Promotional expense, including the expenses associated with the
Genisys product introduction, increased to $132,456 for the first six months of
1996 compared with $25,966 incurred by the Company for the comparable 1995
period, and trade show expense increased by $49,781, or 54.2%, to $141,546 for
the first six months of 1996 compared with $91,765 incurred in the comparable
1995 period. Amortization expense, primarily amortization of the purchase
price of the rapid prototyping assets acquired from IBM, increased to $232,129
for the six months ended June 30, 1996 compared with $96,635 for the six months
ended June 30, 1995. SG&A expenses increased to 43.6% of sales for the six
months ended June 30, 1996 from 43.3% for the six months ended June 30, 1995.
R&D expenses increased to $1,436,267 for the six months ended June 30,
1996, from $951,767 for the six months ended June 30, 1995, an increase of
$484,500, or 50.9%. Salaries, wages, and
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<PAGE> 20
related payroll expense increased by 28% for the first six months ended June
30, 1996 compared with the comparable 1995 period. Contract labor increased by
51.6% to $188,611 for the six months ended June 30, 1996, compared with
$124,376 incurred for the six months ended June 30, 1995. Travel expenses
increased to $176,533 for the six months ended June 30, 1996 from $43,620
incurred in the six months ended June 30, 1995, an increase of 304.7%. Most of
the 1996 travel was incurred to coordinate the activities of the New York R&D
facility with the Minneapolis facility. R&D expenses declined to 17.8% of
revenue for the six months ended June 30, 1996 from 24.9% of revenue for the
six months ended June 30, 1995. For the six months ended June 30, 1996, the
Company capitalized $559,464 of software development costs, in accordance with
FASB 86, as compared with $580,076 that was capitalized for the comparable 1995
period. Total expenditures related to the New York R&D facility amounted to
$1,021,845 for the six months ended June 30, 1996. Of this, $443,929 was
capitalized in accordance with FASB 86.
The Company's operating income for the six months ended June 30, 1996
amounted to $336,382, or 4.2% of sales, compared with an operating loss of
$235,173, or 6.2% of sales, for the six months ended June 30, 1995. Net
interest income totaled $246,692 for the six months ended June 30, 1996
compared with net interest income of $62,288 for the six months ended June 30,
1995.
The Company's net income for the six months ended June 30, 1996 amounted
to $583,074, or 7.2% of sales, compared with a net loss of $172,885, or 4.5% of
sales, for the six months ended June 30, 1995. The earnings per share for the
six months ended June 30, 1996 was $.10 on fully-diluted weighted average
number of common and common equivalent shares outstanding of 5,659,117 as
compared with a loss per share of $.05 on weighted average number of common and
common equivalent shares outstanding of 3,382,434 for the six months ended June
30, 1995.
Fiscal Year Ended December 31, 1995 as Compared to Fiscal Year Ended December
31, 1994
Sales for the twelve months ended December 31, 1995 increased by
$6,484,358 or 171.1%, as compared with the twelve months ended December 31,
1994. For the twelve months ended December 31, 1995, sales totaled $10,275,186
compared with sales of $3,790,828 recorded in the twelve months ended December
31, 1994. The increase was largely attributable to the continued unit sales
growth of the Company's FDM(R)-1600 Benchtop system that features ABS- and
multiple-material modeling capabilities. Gross margin increased by $4,189,638,
or 192.3%, from $2,178,707 in the twelve months ended December 31, 1994 to
$6,368,345 in the twelve months ended December 31, 1995. As a percentage of
sales, gross margin improved to 61.9% in the twelve months ended December 31,
1995 as compared with 57.5% in the twelve months ended December 31, 1994. The
improvement to the Company's gross margin was largely due to reductions in the
Benchtop's material cost combined with moderate increases to its direct labor
and manufacturing overhead as the Company expanded its manufacturing and
production capacity. The Company has also continued to successfully sell its
Benchtop units with multiple material-modeling capabilities. These machines
have both higher selling prices as well as better gross margins.
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<PAGE> 21
Selling, General and Administrative ("SG&A") expenses increased to
$4,231,571 in the twelve months ended December 31, 1995 from $2,255,651 in the
comparable 1994 period. This represents a $1,975,920, or 87.6%, increase in
SG&A expenses from 1994 to 1995. The compensation component of SG&A, including
commissions earned on higher sales, increased by 127.3% in 1995 as compared
with 1994. In January 1995, the Company began expanding both its domestic and
international sales staffs, which continued through the fourth quarter. At
December 31, 1995 the Company had regional sales representation in all its
major geographic markets, and had expanded coverage overseas, including a new
regional agency in India. Due to the expanded sales staff and higher sales
volume, travel expenses increased by 131.7% to $572,110 in the twelve months
ended December 31, 1995 as compared with the same 1994 period. Expenses for
advertising and promotion, recruiting, and bad debts increased to $334,379,
$132,237 and $111,154, respectively, in the twelve months ended December 31,
1995 compared with $174,711, $47,008 and $20,000, respectively, for the twelve
months ended December 31, 1994. The large increase in bad debt expense was a
result of the Company's increase in the allowance for doubtful accounts due to
the increase of approximately $2,000,000 in accounts receivable. SG&A expenses
declined to 41.2% of sales in the twelve months ended December 31, 1995,
compared with 59.5% in the twelve months ended December 31, 1994.
Research and Development ("R&D") expenses increased to $1,995,696 in the
twelve months ended December 31, 1995 from $1,023,752 in the twelve months
ended December 31, 1994, representing an increase of $971,944, or 94.9%from
1994 to 1995. The compensation component of R&D which included salaries,
wages, benefit expense, and contract labor increased by 241.3% due primarily to
the addition of former employees of IBM, who were hired following the January
1, 1995 acquisition from IBM of its rapid prototyping technology and related
assets. Subsequently, the Company opened an R&D facility in New York, which
largely accounted for a $146,028, or 655%, increase in rent, utility, and
general office expenses in 1995 as compared with 1994. Expenses for travel,
depreciation, and amortization increased to $98,568, $136,776, and $179,581,
respectively, in the twelve months ended December 31, 1995 as compared with
$17,264, $0 and $0, respectively, in the comparable 1994 period. As a result of
using in-house software programmers, the Company was able to reduce certain
software development expenditures by $121,491 in 1995 as compared with 1994.
In the twelve months ended December 31, 1995, the Company capitalized
$1,138,499 of software development costs in accordance with FASB 86, as
compared with no capitalization in the comparable 1994 period. As a percentage
of sales, R&D expenditures amounted to 19.4% and 27.0%, respectively, in the
twelve months ended December 31, 1995 and December 31, 1994. Total
expenditures related to the R&D facility in New York amounted to $1,950,950 in
the twelve months ended December 31, 1995. Of this, $714,574 was capitalized
in accordance with FASB 86.
Net interest income amounted to $303,350 in the twelve months ended
December 31, 1995 as compared with net interest expense of $33,073 in the
comparable 1994 period. In the twelve months ended December 31, 1995, interest
was earned on the invested proceeds of the Company's 1994 public offering and
on the proceeds from the sale of common stock through private sales that
occurred in May, August, and November 1995. Interest expense in the twelve
months ended December 31, 1994 was
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<PAGE> 22
incurred primarily on $600,000 borrowed in the October 1993 bridge note
financing. These notes were paid in November 1994 from the proceeds of the
public offering.
The Company earned an annual profit for the first time in 1995. The
Company's net income in the twelve months ended December 31, 1995 amounted to
$371,024, or 3.6% of sales. For the comparable 1994 period, the Company
incurred a loss of $1,133,769. The income per share for the twelve months
ended December 31, 1995 on a fully diluted basis amounted to $.09 on weighted
average number of common and common equivalent shares outstanding of 4,046,123
as compared with a loss per share of $.69 on weighted average shares
outstanding of 1,650,106 for 1994.
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended June 30, 1996 as Compared to Six Months Ended June 30, 1995
The Company's cash deficits from its operations for the six months ended
June 30, 1996 and 1995 were $1,650,646 and $519,332, respectively. A
significant increase in accounts receivable and inventory accounted for
$2,087,500 and $1,333,049, respectively, of the cash deficit for the six months
ended June 30, 1996, while an increase in the Company's trade payables and
other current liabilities generated $579,329 of cash in the same 1996 period.
Increases in accounts receivable and inventory of $569,570 and $188,849,
respectively, accounted for most of the cash used for the six months ended June
30, 1995. In its investing activities, the Company, in the first six months of
1996 used $1,185,583 in cash, including $480,072 for the acquisition of
machinery and equipment and $594,009 for payments for intangible assets,
$559,465 of which were for the capitalization of software costs in accordance
with FASB 86. The Company used $917,181 in investing activities for the six
months ended June 30, 1995, including $363,363 for the acquisition of machinery
and equipment and $580,075 for payments for capitalized software costs. Net
cash provided by the Company's financing activities was $1,902,422 for the six
months ended June 30, 1996, as compared to $439,849 for the six months ended
June 30, 1995. In the 1996 period, the Company received net proceeds of
$1,984,775 from the exercise of 76,661 options and 198,450 warrants and used
$82,353 for payments under capitalized leases. For the six months ended June
30, 1995 the Company received net proceeds from the sale of common stock of
$522,666, and used $82,817 for payments under capitalized leases. Net cash for
the six months ended June 30, 1996, decreased by $933,807, compared with a net
cash decrease of $996,664 for the six months ended June 30, 1995.
At June 30, 1996, the Company's cash and cash equivalents and marketable
securities balances totaled $10,201,799. This cash will be used by the Company
for additional working capital, for expansion of facilities, for new product
introduction and development, for acquisition of production equipment and
computers, and for increased selling and marketing activities. Management
believes that the Company's revenue from operations, its current cash and cash
equivalents balance, and the proceeds from the sale of short term marketable
securities should provide sufficient cash resources to finance its operations
for at least 24 months.
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The Company introduced three new products in March 1996- the FDM 1650,
the Genisys 3D Printer, and the Stratasys 8000. The Company began shipments of
the FDM 1650 in March 1996. The Company began shipments of the Genisys 3D
Printer in June 1996. The Stratasys 8000 is a system that builds larger
prototypes than the Company's current FDM series of rapid prototyping machines.
Shipments of the Stratasys 8000 are targeted to commence as early as the fourth
quarter of 1996. Technical, production, or quality problems could arise,
however, that could delay the shipments of the Stratasys 8000. Although the
Company believes that there is a significant market for the Stratasys 8000 and
Gensisys, there can be no assurance that such market acceptance will occur.
Therefore, the Company cannot predict whether it will derive significant
revenue from the sale of these two products.
As of June 30, 1996, the Company had net accounts receivable of
$4,856,510 and inventories of $2,240,368. Total current assets were
$17,502,201 compared with total current liabilities of $3,036,023. The balance
sheet indicates that the Company has a high current ratio. The Company
estimates that it will spend approximately $1,000,000 in 1996 on expansion of
its production capacity, facility's expansion, and the acquisition of
production equipment and computers. As of June 30, 1996, material commitments
for the acquisition of production equipment through a capital lease amounted to
approximately $110,000. The Company also has commitments for facility
expansion and the installation of a new computer system for which the Company
expects to spend approximately $95,000 in the third quarter of 1996.
Fiscal Year Ended December 31, 1995 as Compared to Fiscal Year Ended December
31, 1994
From its inception through December 31, 1995, the Company has not been
able to internally generate sufficient cash flow to support its working capital
needs or to fund capital expenditures.
The Company's cash deficits from its operations for the twelve months
ended December 31, 1995 and 1994 were $405,807 and $965,149, respectively. To
finance these deficits, the Company sold equity securities in the amount of
$470,000 in the first nine months of 1994 and received net proceeds of
approximately $5,736,000 following its IPO on October 20, 1994, in which
1,380,000 shares of its Common Stock were sold. In June 1995, the Company
received gross proceeds of approximately $520,000 from the sale of 86,667
shares of the Company's Common Stock. In August 1995, the Company received net
proceeds of approximately $3,556,000 from the issuance of 335,333 shares of
Common Stock and warrants to purchase an additional 67,067 shares of Common
Stock in a private placement. The Company also received net proceeds of
approximately $4,672,000 through the sale of stock and warrants in November
1995. (See notes to financial statements.) During 1995, options to purchase
42,324 shares of Common Stock were exercised, with proceeds to the Company of
approximately $51,000. In addition, warrants to purchase 4,792 shares of
Common Stock were exercised with gross proceeds to the Company of approximately
$28,000. The proceeds of such financings were also used to acquire property
and equipment in the amount of $683,389 in 1995 and $143,321 in 1994. In 1995
the Company also used $1,215,212 for payments for intangible assets, primarily
for the capitalization of software expenses, as compared with $16,212 in 1994.
The
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Company's purchase of short-term marketable securities amounted to $12,639,993
in 1995, of which $6,349,743 were sold in the same period. In 1995, the
Company's financing activities included payments under capital leases of
$170,983. This compares with $46,591 that the Company paid in 1994. In 1995
and 1994, the Company's net increase in cash and cash equivalents amounted to
$90,847 and $4,098,288, respectively. The Company's ending cash and cash
equivalents balance at December 31, 1995 and 1994 was $4,726,056 and
$4,635,209, respectively. In 1996, the Company issued approximately 174,000
shares of its Common Stock, primarily as a result of the exercise of warrants,
for aggregate proceeds of approximately $1,500,000. As of January 1996, the
Company's cash and marketable securities balance exceeded $12,000,000. This
cash will be used by the Company for additional working capital, for expansion
of facilities, for acquisition of production equipment and computers, and for
increased selling and marketing expenses. Management believes that the
Company's revenue from operation, its current cash and cash equivalents
balances, and the proceeds of the sale of short-term marketable securities will
provide sufficient cash resources to finance its operations for at least 12 to
24 months. While the Company has been successful in raising funds through its
IPO and in subsequent private placements, there is no assurance that the
Company will be able to raise funds in the future through the equity or debt
markets, should the need arise. The Company has no current plans to raise
additional cash through debt or equity financing.
In January 1995, the Company purchased certain rapid prototyping and
related assets from IBM for an aggregate purchase price of (i) $500,000, which
included an equipment lease, and (ii) 500,000 shares of the Company's
restricted common stock with an ascribed value of $2,500,000 ($5.00 per share).
At the time of the IBM asset purchase, IBM had completed all necessary
engineering activity required to advance the design of the machine acquired to
the point that it met all specific functional and economic requirements and was
ready for manufacture. The Company, however, determined that it would delay
introduction of the machine and improve it to enhance marketability. As of
December 31, 1995, the Company had derived no revenue from the technology
acquired from IBM. The machine was introduced in March 1996 as Genisys(TM).
As of December 31, 1995 the Company had accounts receivable of $2,899,010
and inventories of $907,319. Total current assets were $14,830,856 compared
with total current liabilities of $2,190,536. The balance sheet indicates that
the Company is reasonably liquid, with a high current ratio. The Company
estimates that it will spend approximately $850,000 in 1996 on expansion of its
production capacity, facilities expansion, the acquisition of production
equipment and computers. The only material commitment that the Company had as
of March 15, 1996 was for production equipment acquisition and facilities
expansion for which the Company expects to spend approximately $175,000.
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BUSINESS
BUSINESS DEVELOPMENT
The Company was incorporated under the laws of the State of Delaware on
August 8, 1989. The Company's executive offices are located in Eden Prairie,
Minnesota.
On October 20, 1994, the Company successfully completed an initial public
offering ("IPO") of 1,380,000 shares of its Common Stock, including 180,000
shares issued upon exercise of the underwriter's over-allotment option. The
shares of Common Stock were sold at $5.00 per share with the Company receiving
net proceeds of approximately $5,700,000. The underwriter was also granted
warrants to purchase up to 120,000 shares of Common Stock, exercisable at $7.50
per share, until October 1999.
On January 1, 1995, the Company purchased certain rapid prototyping
assets from IBM, pursuant to an Assignment and Sale of Rapid Prototyping
Technology and Related Assets Agreement dated as of January 1, 1995. See
"CERTAIN TRANSACTIONS."
In March 1996, the Company announced three new products, Genisys(TM), the
FDM(R)-1650, and the Stratasys-8000, each of which is oriented to separate
stages of a customer's product development cycle.
BUSINESS OF THE COMPANY
The Company develops, manufactures and markets a family of rapid
prototyping devices that enable engineers and designers to create physical
models, tooling and prototypes out of plastic and other materials directly from
a computer aided design ("CAD") workstation. In many industries, the models
and prototypes required in product development are produced laboriously by
hand-sculpting or machining, a traditional process that can take days or weeks.
The Company's computerized modeling systems use its proprietary technology to
make models and prototypes more directly from a designer's three- dimensional
CAD in a matter of hours.
The Company believes that its patented fused deposition modeling
("FDM(R)") technology and new Genisys(TM) technology are the only rapid
prototyping systems commercially available that can produce parts from plastic
without relying on lasers. This affords the Company a number of significant
advantages over other commercially available three-dimensional rapid
prototyping technologies, which primarily rely on lasers to create models.
Such benefits include the ability to use the device in an office environment
due to the absence of hazardous emissions, the need for relatively little set
up of the system for a particular project, the availability of a variety of
modeling materials and the lack of any need for costly replacement lasers and
laser parts. The systems can also run virtually unattended, producing models
while designers perform other tasks.
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The process involved in the development of a three-dimensional model
using the 3D-Modeler, the FDM(R) Benchtop systems, or the Stratasys-8000 begins
with the creation of a conceptual geometric model on a CAD workstation. The
model is then imported into the ProtoSlice or QuickSlice(R) software program,
which mathematically slices the conceptual model into horizontal layers that
are downloaded into the system. These rapid prototyping machines basically
draw cross-sections of the model one layer at a time to create a
three-dimensional "blueprint." A spool of thin thermoplastic modeling material
feeds into a moving FDM(R) extruding head, which heats the material to a
semi-liquid state. This semi-liquid material is then extruded and deposited in
ultra-thin flat layers on a base (the "X-Y Stage") in the modeling chamber. As
the material is directed into place by the computer-controlled head, layer upon
layer, the material solidifies, creating a precise and strong laminated model.
The Genisys(TM) modeling process is similar. Genisys(TM) uses
AutoGen(TM) software to slice the conceptual model created on a CAD workstation
into horizontal layers that are downloaded into Genisys(TM). Genisys(TM) then
uses wafers of modeling material, rather than spools of filament, to feed the
extrusion head. The extrusion head heats these wafers and, using a precision
hydraulic conical pump, deposits a continuous layer of plastic polymer beads
(much like squeezing toothpaste from a tube) onto the X-Y Stage to create a
three-dimensional model by building up layers. In comparison to the FDM(R)
Benchtop systems, due to its size, Genisys(TM) allows the prototype to be
created on a desktop, directly from a workstation, like a 3D printer.
PRODUCTS
Modeling Equipment. The Company has been developing and improving its
line of rapid prototyping products since its inception in 1989. Since that
time, the Company has developed and sold systems including the 3D-Modeler, a
smaller benchtop version of the 3D-Modeler called the FDM(R)-1500 Benchtop,
introduced in June 1993; an improved benchtop modeler called the FDM(R)-1600
Benchtop, introduced in November 1994; the Company's Protoslice operating
software package; its successors QuickSlice(R) and Autogen(TM); and in some
cases, a CAD workstation manufactured by SGI. The FDM(R)- 1600 Benchtop
offered customers more features than its predecessor, the FDM(R)-1500,
including dual heads. As such, it had increased hardware and software
performance. Although the Company has discontinued sales of the 3D-Modeler,
the FDM(R)-1500, SGI workstations and, in early 1996, the FDM(R)- 1600 Benchtop
system, it continues to support and provide modeling materials for these
systems. In addition, the Company no longer sells ProtoSlice, the predecessor
to QuickSlice(R), although some of its current customers continue to use
ProtoSlice.
In March 1996, the Company introduced three new rapid prototyping
machines for commercial sale. Genisys(TM) is a 3D desktop printer which uses
the rapid prototyping technology developed by IBM that the Company purchased in
1995. It is useful for the production of conceptual models employed in the
early stages of the design cycle, as it enables a designer to produce concept
iterations at his desk directly from a workstation in a simple push-button
fashion. The FDM(R)-1650 Benchtop, the latest in the Company's line of FDM(R)
modelers, can produce functional prototypes at three times the speed of
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its predecessor, the FDM(R)-1600 Benchtop, and can accommodate a variety of
engineering modeling materials. The third new product, the Stratasys-8000, is
a rapid prototyping device, which incorporates the medulla electronics and a
portion of the front-end software technology of Genisys(TM) and the filament
extrusion method of the Company's FDM(R) products. It is capable of building
prototypes up to 24 inches in size at a through-put approximately 600% faster
than the Company's FDM(R)-1600 system. Like the FDM(R)-1650 Benchtop, the
Stratasys-8000 can use several types of modeling materials to generate
prototypes. Shipment of the FDM(R)-1650 Benchtop began in February 1996,
shipment of the Genisys(TM) machine began in June 1996 and shipment of the
Stratasys-8000 is expected to begin in the second quarter of 1997.
The three new systems offer product designers and developers the ability
to create prototypes throughout all stages of the development cycle as well as
a wide range of prices from which to choose. The prices of the systems start at
$55,000 for Genisys(TM) and reach $300,000 for the Stratasys-8000. The cost of
the FDM(R)-1650 Benchtop is approximately $100,000. By comparison, the
Company's original 3D Modeler sold for between $150,000 and $180,000.
Customers have the option to purchase an entire rapid prototyping system from
the Company or to buy individual components.
Modeling Material. FDM(R) technology allows the use of a greater
variety of modeling materials and colors than other technologies. The Company
continues to develop filament modeling materials which meet the customers'
needs for increased speed, strength, accuracy, surface resolution and color.
These materials are processed into its patented filament form, which is then
fed into the 3D-Modeler, the FDM(R) Benchtop systems, or Stratasys-8000. The
Company's spool-based system has proven to be a significant advantage for its
products over Ultra Violet ("UV") polymer systems, because the Company's system
allows the user to quickly change material by simply mounting the spool and
threading the desired material into the FDM(R) devices. Each spool weighs
approximately 2.3 pounds, and the creation of a model may require from 0.1
pound to more than one pound of filament. Another advantage of the spool-
based system over a UV polymer system is that the spool-based system allows the
user to purchase a single spool as compared to an entire vat of UV polymer,
thereby reducing the user's up-front costs.
Currently, the Company has five modeling materials commercially available
for model generation using its FDM(R) technology: a machinable wax, a tough
polyamide plastic polymer that is similar to nylon, an investment casting wax,
the hard polymer material ABS (named for its three initial monomers), which is
used commercially to make products such as telephones, and a medical grade ABS
(MABS), used for medical applications. Each material has specific
characteristics that make it appropriate for various applications. The ability
to use different materials allows the user to match the material to the end use
application of the prototype, whether it is a pattern for tooling or a concept
model.
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Genisys(TM) uses only one type of modeling material, a plastic polymer,
which is manufactured in the form of wafers. A total of 52 wafers are held in
a cassette, which allows the wafers to be fed into the machine and rapidly
extruded in layers. Additional cassettes are easily loaded into the system.
The modeling filament and wafers are consumable products that provide
additional revenue for the Company. They are competitive in price with
materials used in other rapid prototyping systems.
The Company entered into an agreement with 3M in July 1992, which
provides for the development of advanced modeling materials by the two
companies. The agreement has a term of five years, with a renewal for an
additional five-year period, but can be terminated by either party on 30 days'
notice. It provides for joint ownership of joint inventions and grants each
party certain rights to exploit joint developments. Sole intellectual property
rights of each party remain the property of that party. The agreement
prohibits 3M from competing with the Company in the manufacture and sale of
FDM(R) devices or specified modeling materials until the later of five years
from the contract's effective date or the end of the term of the agreement.
Operating Software. The Company offers two software products:
QuickSlice(R) and Autogen(TM). The predecessor to QuickSlice(R), called
ProtoSlice, is no longer sold by the Company but is still used by some of the
Company's current customers. It is a variation of Camand(TM) Software, which
was developed and copyrighted by Camax, Inc. ("Camax"). The ProtoSlice
operating software contained an array of features and capabilities combined
specifically for use with the Company's 3D-Modeler and the FDM(R)-1500 systems
in conjunction with a sophisticated CAD system software produced by Camax. The
Company was a non-exclusive licensee and a value-added reseller of the
ProtoSlice software.
QuickSlice(R) is a simple, easy-to-use software package. The overall
architecture and detailed design was developed by the Company, and copyright
and full ownership of the QuickSlice(R) software is retained by the Company.
The Company sells the QuickSlice(R) software package for $7,000. QuickSlice(R)
2.0, a modified version of QuickSlice(R), is the operating software for the
Company's new FDM(R)-1650 system. The Company also supplies a library of
utility software programs and procedures to simplify the handling of data and
to automate common tasks.
In 1994, the Company developed and released to the public a software
package called SupportWorks(TM). SupportWorks(TM) is used in conjunction with
QuickSlice(R) enabling the Company's FDM(R)-1600 Benchtop and FDM(R)-1650
Benchtop systems to automatically generate supports for the models, thereby
eliminating another step in the model-making process. The program, which sells
for approximately $6,000, is copyrighted and owned by the Company.
In 1996, the Company introduced AutoGen(TM), software specifically
designed for Genisys(TM). AutoGen(TM) orients and analyzes the user's CAD, then
divides it into "slices." AutoGen(TM) then drives the rapid prototyping
hardware. Certain features of AutoGen(TM) are also used in the Stratasys-8000.
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CURRENT APPLICATIONS OF RAPID PROTOTYPING
Rapid prototyping systems enable engineers and designers to produce
models of their engineering designs faster and cheaper than with conventional
manual methods. The prototypes themselves are used to test product form,
function and fit to specific tolerances. Casting and foundry companies also
use three-dimensional models as the final pattern for a cast part in investment
casting and lost wax casting processes. In addition, several domestic and
international manufacturers produce one-of-a-kind orthopedic implants for
patients using computed topographic scanning and wax investment casting masters
produced with the Company's FDM(R)-1600 Benchtop and FDM(R)-1650 Benchtop
systems.
POTENTIAL FUTURE APPLICATIONS
The Company has positioned its products to be used as devices that
support CAD systems in a variety of manufacturing industries, including
automotive, aerospace, consumer products, electronics and medical applications.
They are also used in universities. Additional future applications may arise
in conceptual design, casting, precision prototypes, consumer packaging,
architectural design, rapid manufacturing of small-volume custom parts and fit,
form and function testing, secondary tooling, and mold-making. NASA is using
the FDM(R)-1600 Benchtop system and plans to build spare parts in space,
thereby reducing the inventory of parts in a space flight payload.
Among potential medical applications, rapid prototyping could be used to
produce accurate models of internal organs, bones or skulls for pre-operative
evaluations or modeling of prostheses. In such uses, the Company's products
could serve as peripheral devices for X-Ray, CAT SCAN and magnetic resonance
imaging ("MRI") devices.
MARKETING, DISTRIBUTION AND CUSTOMERS
The strategic focus of the Company's marketing efforts begins with
identifying the needs of product managers, conceptual designers, draftsmen,
design and manufacturing engineers and production specialists in manufacturing
companies. The Company then seeks to develop a comprehensive offering of
modeling and prototyping products to satisfy those needs, using the Company's
FDM(R) and Genisys(TM) technology either in complete systems or components
consisting of rapid prototyping devices, modeling materials and associated
software. The Company has sold systems to, among other customers, General
Motors Corporation, 3M, Ford Motor Company, Square D Company, Texas
Instruments, Biomet, Inc., Motorola, Marbeth, Marubeni, Wright Patterson Air
Force Base, the Naval Air Warfare Center, Tatung and NASA, as well as service
bureaus, universities and distributors in the United States and abroad. With
the purchase of the rapid prototyping assets from IBM on January 1, 1995, the
Company also received a prospective customer list from IBM. The Company has
begun to promote its current technology to these prospective customers in an
effort to further expand its customer base. The Company sells both complete
rapid prototyping systems and separate components.
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The Company utilizes a variety of tactical marketing methods to reach
potential customers, including press releases, trade magazine articles,
customer studies, brochures, direct mailings, telemarketing programs, trade
show demonstrations and videos. In addition, the Company has developed
domestic and international on-site demonstration capabilities. The Company
also concentrates a portion of its sales and marketing efforts on support of
its service bureau clients, which provide prototyping services to various
manufacturing industries and which provide the Company with information
regarding customer needs.
Domestically the Company sells directly to its customers. The Company
markets internationally through a network of distributors and sales
representatives. During the years ended December 31, 1994 and 1995, export
sales amounted to approximately $1,444,000 and $5,080,000, respectively.
No customer accounted for more than 10% of sales in 1994 or 1995.
WARRANTY AND SERVICE
The Company provides a 90-day warranty on its domestic systems and a
one-year warranty on those sold internationally. In addition, the Company
offers annual service and maintenance contracts for its systems. The service
contracts include updates of the Company's software systems, which generally
occur every six months.
MANUFACTURING
The Company's manufacturing process consists of the manual assembly of
purchased components. All parts used in the manufacturing process are obtained
from either distributors of standard electrical or mechanical parts or from
custom fabricators of the Company's proprietary designs. The Company currently
operates on a build-to-inventory basis.
The Company purchases the major component parts for the FDM(R)-1650
Benchtop, Stratasys-8000 and Genisys(TM) systems from various outside vendors,
subcontractors and other sources and assembles them at its Minnesota facility.
The Company performs numerous diagnostic tests and quality control procedures
throughout the assembly process in order to assure reliability of its products.
Prior to shipment, each unit is subjected to a test and burn-in procedure to
check for defects. Precision modeling parameters are also checked.
The Company maintains an inventory of most of its necessary supplies,
which facilitates the assembly of products required for production. The
Company's sole current supplier of the X-Y Stage for the FDM(R)-1650 Benchtop
system is Asymtek; and its sole current supplier of the FDM(R) head motors is
MircoMo Electronics, Inc. The Company considers each of those suppliers to be
reliable. Nevertheless, the Company maintains an inventory of such components
to support continued supply. Furthermore, the Company believes that the
supplier of the X-Y Stage could be replaced by in-house
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design and production of the part within a three-month period, if necessary;
and the Company could employ FDM(R) head motors from other suppliers by
modifications to the design of the FDM(R)-1650 Benchtop. In regard to other
parts and materials, the Company uses multiple sources of supply and does not
believe that it is dependent on any single supplier. Although the Company
believes that it maintains adequate inventories of vendor- specific materials,
the loss of a supplier of such vendor-specific materials or compounds could
result in a delay in the manufacture and delivery of those materials and
compounds resulting from the need to retest and recertify products supplied by
one or more new vendors. The Company considers its relationships with its
suppliers to be good.
RESEARCH AND DEVELOPMENT
The Company has devoted significant time and resources to the development
of a universally compatible and user-friendly software system. The Company
believes that ongoing research and development efforts are essential to its
continued success. Accordingly, the Company's engineering development efforts
will continue to focus on improvements to the FDM(R) and Genisys(TM) technology
and development of new modeling processes, materials, software and products.
To date, much of the Company's activity has been focused on research and
development. For the years ended December 31, 1994 and 1995, the Company's
research and development expenses were approximately $1,024,000 and $1,996,000,
respectively.
The Company's filament development and production operation is located at
its facility in Eden Prairie, Minnesota. The filament formulation and
manufacturing process is regarded by the Company as a trade secret, and the
Company holds patent claims on filament usage in its products.
INTELLECTUAL PROPERTY
The Company considers its proprietary technology to be important to the
development and manufacture of its products and seeks to protect its technology
through a combination of patents and confidentiality agreements with its
employees and others. Scott Crump, the Company's President, was granted two
U.S. Patents which cover many claims relating to various aspects of its
products, FDM(R) technology and the associated modeling process. The term of
one patent lasts until June 9, 2009, and the term of the other lasts until
August 23, 2011. The patents have been assigned to the Company. In addition,
Mr. Crump and three other employees of the Company have assigned to the Company
a patent application for another rapid prototyping process and apparatus
associated with the FDM(R) process, which application is pending with the
Patent Office. As part of its purchase of rapid prototyping technology assets
from IBM, the Company was also assigned the rights and title to three patents
developed by IBM, which cover the Genisys(TM) system and which the Company
believes will further augment its own product lines. The Company recorded
these patents domestically and is in the process of recording them in certain
foreign countries. The terms of these patents extend until June 7, 2005, April
12, 2011, and May 17, 2011, respectively.
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Corresponding patent applications covering the same claims that are
contained in the Company's issued patents have been initiated in various
foreign countries, including Japan and the European Community. Other patent
applications have also been filed, including the patent applications assigned
to the Company by IBM. The Company has registered several trademarks,
including "Stratasys, Inc.," "3D-Modeler," "QuickSlice," "3D-Plotter,"
"3D-Visualizer" and "FDM." Each of the registered trademarks has a duration of
10 years and may be renewed every 10 years while it is in use. Trademark
applications have been filed in Japan and the European Community. Trademark
applications have also been filed in the United States for Genisys(TM).
COMPETITION
The Company competes in a marketplace that is still dominated by
conventional methods of model and prototype development, which are primarily
performed by machinists and engineers working from blueprints or CADs and using
machining or by-hand methods. The Company believes that there is currently no
other commercial producer of three-dimensional modeling devices that uses a
single-step, non-toxic technology similar to the Company's FDM(R) and
Genisys(TM) technologies. All other plastic model systems involve an
additional post-processing step, such as curing the part after construction of
the model or prototype. The Company's FDM(R) and Genisys(TM) technologies do
not rely on the laser or light technology used by many other commercial
manufacturers in the rapid prototyping industry.
A number of different technologies are employed in rapid prototyping
devices marketed by the Company's competitors. Stereolithography is used in
the products of 3D Systems, Cubital, Ltd., EOS Gmbh, CMET, D-MEC, Mitsui and
Teijin Seiki Co. 3D Systems, in which Ciba-Geigy has a substantial interest,
introduced the first rapid prototyping product. The Company believes that 3D
Systems may account for 40% of sales of rapid prototyping units to date. DTM
Corporation produces machines that use lasers to sinter or harden powdered
material. B.F. Goodrich has a significant financial interest in this company.
Helisys, Inc. utilizes lasers to cut and laminate sheets of materials, such as
paper. The Company believes that its FDM(R) technology has important
advantages over the products of these companies, including the ability to be
used in an office environment, the availability of multiple modeling materials
and a one-step process. Sanders Prototype, Inc. ("Sanders"), 3D Systems and
BPM have developed a prototyping system which uses ink-jet technology to
deposit wax material layer by layer. A smoothing or milling process is required
between each deposited layer to maintain accuracy. The Sanders machine is
currently capable of building small parts.
Certain of the Company's competitors have greater financial and marketing
resources than the Company.
EMPLOYEES
The Company is dependent on the abilities and efforts of a number of key
personnel, including its Chief Executive Officer and President, S. Scott Crump.
The Company entered into an employment
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<PAGE> 33
agreement with Mr. Crump on September 1, 1994, the term of which ends on
October 20, 1997. The employment agreement provides for a salary of $85,000
per annum, with increased or additional compensation to be approved by the
Board of Directors, and the right to participate in incentive compensation
plans, if any are established by the Company. Mr. Crump's annual compensation
was increased to $95,000 on November 1, 1995. The employment agreement
restricts Mr. Crump's right to work for any competitor of the Company for a
period of one year after termination of his employment by the Company. In
addition, if the Company terminates Mr. Crump's employment for "Cause," as such
term is defined in the employment agreement, the Company must pay Mr. Crump
only one monthly installment of his salary. If Mr. Crump is terminated for
"Good Reason," as such term is defined in the employment agreement, Mr. Crump
will receive one such monthly installment of salary plus twelve additional
monthly installments.
As of October 14, 1996, the Company had 100 full-time employees and 20
part-time employees or subcontractors. While the Company has separate internal
departments, such as manufacturing, marketing, engineering and sales, many
employees perform overlapping functions within the organization. No employee
is represented by a union, and the Company has not experienced a work stoppage.
The Company believes its employee relations are good.
PROPERTIES
The Company's executive offices and production facility presently occupy
approximately 27,756 square feet in Eden Prairie, Minnesota, near Minneapolis.
In November 1995, the Company exercised a right of first refusal to rent an
additional 10,354 square feet of office and warehouse space in the same
location. As of August 1, 1996 the Company occupied all such additional space,
and the Company's lease of the entire premises was extended until July 31,
1999. The Minnesota facility is used for machine assembly and filament
production, as well as sales, administration and operations. As of the July
1996 expansion, the monthly rent for the premises occupied by the Company
totalled $14,759.91. The Company does not require a large space for
production, because it assembles its devices from sub- assemblies manufactured
by outside vendors.
Additional research and development is performed at the company's
facility in Hawthorne, New York. This facility occupies approximately 5,710
square feet of space. The Company occupies these premises under a lease that
expires on January 25, 1998. The monthly rent is currently $5,353.
The Company is also responsible for real estate taxes, insurance,
utilities, trash removal and maintenance expenses concerning both of these
premises.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal or administrative
proceeding, and its property is not subject to such proceeding.
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<PAGE> 34
GOVERNMENTAL REGULATION
The Company is subject to various local, state and federal laws and
regulations that affect businesses generally, including regulations promulgated
by federal and state environmental and health agencies, the Federal
Occupational Safety and Health Administration and laws pertaining to the
hiring, treatment, safety and discharge of employees. Historically, regulatory
compliance has not had a material adverse effect on the Company's sales or
operations. The Company believes it is in compliance with material applicable
laws.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth information concerning the Company's
executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
S. Scott Crump 43 President, Chief Executive Officer, Treasurer, Chairman of the
Board, and Chief Financial Officer
Lisa H. Crump 43 Vice President and Secretary
Lawrence E. Roscoe 47 Vice President, Software Development
Donald W. Moffatt 55 Chief Operating Officer
Ralph E. Crump 72 Director
Clifford H. Schwieter 48 Director
Arnold J. Wasserman 58 Director
Gregory L. Wilson 49 Director
</TABLE>
BIOGRAPHICAL INFORMATION
S. Scott Crump has served as President, Chief Executive Officer,
Treasurer and a director of the Company since its inception in 1988 and as
Chief Financial Officer since February 1990. During the period 1982 to 1988,
Mr. Crump was a co-founder and Vice President of Sales of IDEA, Inc., which is
now called Structural Instrumentation, Inc., a public company that manufactures
on-board scales for the trucking industry. Mr. Crump remains on the board of
directors and is a significant stockholder
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<PAGE> 35
of that company. Mr. Crump is a registered professional engineer. Mr. Crump
is the son of Ralph Crump and the husband of Lisa Crump.
Lisa H. Crump, a co-founder of the Company, has served as its Corporate
Secretary since its inception in 1988 and as Vice President since 1990. From
1983 to 1988 Ms. Crump was marketing manager of IDEA, Inc. She is the wife of
Scott Crump and the daughter-in-law of Ralph Crump.
Lawrence E. Roscoe has served as Vice President of Software Development
of the Company since 1991. He has over 25 years of software development
experience in engineering and manufacturing applications. Prior to joining the
Company, Mr. Roscoe was Vice President of Software Development at Camax from
1987 to 1991. Mr. Roscoe has also held similar positions with Zycad, Inc.,
Control Data Corporation and Digital Equipment Corporation.
Donald W. Moffatt, 55, has served as Chief Operating Officer of the
Company since February 1996. Prior to joining the Company, from 1984 to 1995,
Mr. Moffatt served as President of Rosemont Aerospace, Inc., a manufacturer of
aircraft measuring instruments and a subsidiary of B.F. Goodrich. Before he
joined Rosemont Aerospace in 1978, Mr. Moffatt, who is an electrical engineer,
was employed by Control Data Corporation.
Ralph E. Crump has been a director of the Company since 1990. Mr. Crump
is President of Crump Industrial Group, an investment firm located in Trumbull,
Connecticut. He is also a founder and director of Osmonics, Inc., a
$110,000,000 manufacturer of reverse osmosis water filtration devices; IMTEC,
Inc., which manufactures bar code labeling equipment; and Structural
Instrumentation, Inc. In 1962, Mr. Crump founded Frigitronics, Inc., which
manufactures ophthalmic goods and medical instruments, and was its President
and Chairman of the Board until December 1986. In 1986, Frigitronics, which
had sales of $130,000,000, was sold to Revlon and a major portion of its
business was then acquired by Johnson & Johnson. Mr. Crump is also a director
and co-founder of Mity-Lite, Inc., a public company that manufactures plastic
tables. He is a Trustee of the Alumni Foundation of UCLA and a member of the
Board of Overseers for the Thayer Engineering School at Dartmouth College. Mr.
Crump is the father of Scott Crump and the father-in-law of Lisa Crump.
Clifford H. Schwieter has been a director of the Company since July 1994.
Since April 1994, Mr. Schwieter has been the President and Managing Director of
C.H. Schwieter & Associates, a financial consulting firm. From July 1992 to
March 1994, he served as President and Chief Executive Officer and a director
of Centric Engineering Systems, Inc., which was engaged in the development of
mechanical design and analysis software for computing systems ranging from
workstations to mainframes and massively parallel networked computing
environments. Mr. Schwieter was Vice President and General Manager of the
Electronic Imaging Systems Division of the DuPont Company from 1986 to 1991.
He was responsible for DuPont's offerings in electronic imaging in markets
ranging from CAD/CAM and industrial automation through printing and publishing
and medical systems. From 1971 to 1986, Mr. Schwieter was with the General
Electric Company, where he served as Vice
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<PAGE> 36
President of GE's Calma Company from 1985 to 1986 and was responsible for that
subsidiary's worldwide business in the mechanical design and factory automation
arena. He was President and Representative Director of GE Industrial
Automation, Ltd., a joint venture between GE and C. Itoh & Company located in
Tokyo, from 1982 to 1985. Mr. Schwieter is also a director of PCS
Technologies, Inc., a software development company.
Arnold J. Wasserman became a director of the Company on November 21,
1994, as the designee of M.H. Meyerson & Co., Inc., the underwriter of the
Company's IPO. Mr. Wasserman has, for the past 25 years, been a principal of P
& A Associates, a leasing/consulting firm. Prior to that, he held positions
with IBM and Litton Industries. Mr. Wasserman has consulted with major
corporations in the areas of marketing, advertising and sales. He is a
director of United Restaurants, Inc., a publicly traded company.
Gregory L. Wilson became a director of the Company on October 20, 1994.
He is the founder of Mity-Lite, Inc. (Nasdaq) and has served as President and a
director of that company since 1987, as well as its Chairman of the Board since
1988 and its Treasurer since 1993. From 1982 until 1987, Mr. Wilson was
President of Church Furnishings, Inc. in Provo, Utah. In 1988, he transferred
his ownership interest in Church Furnishings, Inc. to a co-founder of
Mity-Lite, Inc. in exchange for that person's interest in Mity-Lite, Inc.
All directors hold office until the next annual meeting of stockholders
and until their successors are elected to the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid by
the Company for services rendered during the fiscal years ended December 31,
1993, December 31, 1994, and December 31, 19956 to its Chief Executive Officer,
Scott Crump. No other executive officers received compensation in excess of
$100,000 during such years.
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<PAGE> 37
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
===================================================================================================
Annual Compensation Long-Term Compensation
------------------------------ --------------------------------------------
Awards Payouts
---------------------- --------------------
Securities
Other Underly-
Annual Restricted ing All Other
Name and Compensa- Stock Options/ LTIP Compen-
Principal Salary Bonus tion Award(s) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- --------- ----- -------- ------- --------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $86,654 $3,654 0 0 0 0 0
(1) (2)
S. Scott ---------------------------------------------------------------------------------------
Crump 1994 $67,721 $2,248 0 0 0 0 0
President (3)
and CEO ---------------------------------------------------------------------------------------
1993 $60,000 $692 $3,600 0 0 0 0
(4)
===================================================================================================
</TABLE>
(1) Mr. Crump was paid at the rate of $85,000 per year until November 1,
1995. Upon approval by the Board of Directors, commencing on that date, Mr.
Crump was then paid at the rate of $95,000 per year for the remainder of 1995.
(2) This bonus was earned in 1995 and paid in 1996.
(3) Mr. Crump was paid at the rate of $60,000 per year until October 20,
1994. On that date, an employment agreement between Mr. Crump and the Company
became effective, pursuant to which Mr. Crump was then paid at the rate of
$85,000 per year for the remainder of 1994.
(4) During 1993, Mr. Crump received an allowance of $300 per month from the
Company for an automobile used in business. This payment was discontinued for
1994 and 1995.
No options or SAR's were granted to executive officers of the Company
during the fiscal year ended December 31, 1995. The Company currently has no
long-term incentive plans for compensating its executive officers.
Directors currently receive no cash compensation for serving on the Board
of Directors other than reimbursement of reasonable expenses incurred in
attending meetings. Two Directors have received a non-qualified stock option
to purchase 30,000 shares of the Company's Common Stock for their service on
the Board of Directors. See "CERTAIN TRANSACTIONS" below for a discussion of
options granted to certain directors for consulting services.
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<PAGE> 38
EMPLOYMENT AGREEMENTS
The Company entered into an Employment Agreement with Mr. Crump on
September 1, 1994, the term of which became effective on October 20, 1994. The
Employment Agreement expires in October 1997 and provides that Mr. Crump shall
devote all of his business time to the Company in consideration for an annual
salary of $85,000. Increased or additional compensation must be approved by the
Board of Directors, including the right to participate in incentive
compensation plans, if any, established by the Company. The Employment
Agreement restricts Mr. Crump's right to work for any competitor of the Company
for a period of one year after termination of his employment by the Company.
In addition, if the Company terminates Mr. Crump's employment for "Cause," as
such term is defined in the Employment Agreement, the Company must pay Mr.
Crump only one monthly installment of his salary. If Mr. Crump is terminated
for "Good Reason," as such term is defined in the Employment Agreement, Mr.
Crump will receive one such monthly installment of salary plus twelve
additional monthly installments.
EMPLOYEE STOCK OPTION PLANS
The Company has established three employee stock option plans. The three
plans provide for the grant of options to qualified employees (including
officers and directors) of the Company, independent contractors, consultants
and other persons to purchase an aggregate of 1,300,000 shares of Common Stock.
The plans are administered by the Compensation Committee of the Board of
Directors.
Options to purchase 100,608 shares, which constitute the total number of
shares authorized under the Stratasys, Inc. Employee Stock Option Plan #1,
adopted in October 1990 ("Plan 1"), have all been granted. As of October 14,
1996, Options to purchase 54,608 shares under Plan 1 have been exercised, and
Plan 1 expires on April 19, 2001. Options to purchase 199,392 shares of Common
Stock, which constitute the total number of shares authorized under the Amended
and Restated Stratasys, Inc. 1994 Stock Plan ("Plan 2"), adopted in August
1994, have been granted, 2,400 of which have terminated or expired and are
again available for grant. As of October 14, 1996, options to purchase 54,232
shares under Plan 2 have been exercised. The Stratasys, Inc. 1994-2 Stock
Plan, as amended ("Plan 3"), adopted by the Board of Directors on December 13,
1994, originally authorized the purchase of 500,000 shares of Common Stock. On
March 1, 1996, the Board of Directors authorized, and on May 23, 1996, the
stockholders approved, amending Plan 3 to increase the number of shares
authorized to 1,000,000 shares. Since its adoption, through October 14, 1996,
options to purchase an aggregate of 639,052 shares have been granted under Plan
3, and options to purchase 162,411 shares have been exercised.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the Delaware General Corporation Law, the Company has
included in its Certificate of Incorporation a provision to eliminate the
personal liability of its directors for monetary
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<PAGE> 39
damages for breach or alleged breach of their fiduciary duties as directors,
subject to certain exceptions. In addition, the By-Laws of the Company provide
that the Company is required to indemnify its officers and directors, employees
and agents under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and the Company is required
to advance expenses to its officers and directors as incurred in connection
with proceedings against them for which they may be indemnified, upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to
indemnification. The By-Laws provide that the Company, among other things,
will indemnify such officers and directors, employees and agents against
certain liabilities that may arise by reason of their status or service as
directors, officers or employees (other than liabilities arising from willful
misconduct of a culpable nature). At present, the Company is not aware of any
pending or threatened litigation or proceeding involving a director, officer,
employee or agent of the Company in which indemnification would be required or
permitted. The Company believes that its charter provisions and
indemnification agreements are necessary to attract and retain qualified
persons as directors and officers.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT MAY BE PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING PERSONS OF THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, OR OTHERWISE, THE COMPANY HAS
BEEN ADVISED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT AND
IS, THEREFORE, UNENFORCEABLE.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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<PAGE> 40
PRINCIPAL AND SELLING SECURITYHOLDERS
The table below sets forth, with respect to (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock; (ii) each Director; (iii) all executive officers and Directors as
a group; and (iv) the Selling Securityholders, based upon information available
to the Company as of the date hereof, the number of shares of Common Stock
beneficially owned, or underlying other securities beneficially owned; the
number of shares to be sold; the number of shares of Common Stock beneficially
owned, or underlying other securities beneficially owned after the sale of all
Shares offered; and the percentage of outstanding shares of Common Stock owned
before and after the sale of the Shares offered hereby. None of the Selling
Securityholders has been an affiliate of the Company during the preceding three
years. An aggregate of 404,900 Shares are being offered for the accounts of
the Selling Securityholders. Although there can be no assurance that the
Selling Securityholders will sell any or all of the Shares, the following table
assumes that each of the Selling Securityholders will sell all Shares offered
by this Prospectus.
<TABLE>
<CAPTION>
Amount and Shares Percent of Class(3)
Nature Beneficially ------------------------
Beneficial Shares to Owned Before After
Name Ownership(1)(2) Be Sold(2) After Offering Offering Offering
- ---- --------------- ---------- -------------- -------- --------
OFFICERS, DIRECTORS AND 5% STOCKHOLDERS
- ---------------------------------------
<S> <C> <C> <C> <C> <C>
International Business 500,000 -0- 500,000 9.1% 9.1%
Machines Corp.
Old Orchard Road
Armonk, NY 10504
S. Scott and 776,735 -0- 776,735 14.1% 14.1%
Lisa H. Crump (8)(9)
Lawrence E. Roscoe (8)(14) 4,137 -0- 4,137 * *
Donald W. Moffatt (8)(15) 2,000 -0- 2,000 * *
Ralph E. Crump 329,380(10) -0- 329,380 6.0% 6.0%
28 Twisted Oak Circle
Trumbull, CT 06611
Arnold Wasserman (11) 49,997 -0- 49,997 * *
1 Brookwood Drive
West Caldwell, NJ 07006
Clifford Schwieter (12) 21,255 -0- 21,255 * *
8065 Village Drive
Cincinnati, OH 45242
</TABLE>
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<PAGE> 41
<TABLE>
<CAPTION>
Amount and Shares Percent of Class(3)
Nature Beneficially -------------------
Beneficial Shares to Owned Before After
Name Ownership(1)(2) Be Sold(2) After Offering Offering Offering
- ---- ---------------- ---------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
Gregory L. Wilson (13) 20,000 -0- 20,000 * *
1301 W. 400 North
Orem, UT 84057
All Directors and
executive officers as
a group (8 persons) (14) 1,033,814 -0- 1,040,481 18.5% 18.5%
SELLING SECURITYHOLDERS
- -----------------------
Affida Bank 3,000(16) 3,000 0 * 0
Andromeda Corporation
N.V. 20,000(16) 20,000 0 * 0
Austin J. Baillon 3,593 (4) 3,593 0 * 0
Banco Di Napoli 5,000 (5) 5,000 0 * 0
Bank Austria 7,000 (5) 7,000 0 * 0
Bank Ruegg 600 (5) 600 0 * 0
Banque Scandinave
en Suisse 12,000(16) 12,000 0 * 0
Stanford Baratz 2,000 (4) 2,000 0 * 0
Brookehill Equities,
Inc. (17) 1,667 (5) 1,667 0 * 0
Frank P. Brosens 11,000(16) 11,000 0 * 0
C.S.L. Associates,
L.P. 2,000 (5) 2,000 0 * 0
James J. Chica 5,929 (6) 5,929 0 * 0
Counselors Emerging
Growth Fund, Inc. 21,428(16) 21,428 0 * 0
</TABLE>
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<PAGE> 42
<TABLE>
<CAPTION>
Amount and Shares Percent of Class(3)
Nature Beneficially --------------------------
Beneficial Shares to Owned Before After
Name Ownership(1)(2) Be Sold(2) After Offering Offering Offering
- ---- ---------------- ---------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
Discretionary Trust 1,000 (5) 1,000 0 * 0
Diversified Investment
Fund, L.P. 1,600 (5) 1,600 0 * 0
David J. Doerge Trust 4,284(16) 4,284 0 * 0
First Trust National
Association TTEE
FBO Dennis Doyle IRA 1,796 (4) 1,796 0 * 0
Gifford Fund 8,000(16) 8,000 0 * 0
Russell Jean Gray, Jr. 3,593 (4) 3,593 0 * 0
Dennis J. Hanish 2,874 (4) 2,874 0 * 0
719 (6) 719 0 * 0
Harvest Capital, L.P. 71,350 (5) 71,350 0 1.3% 0
Thomas S. Hay 1,437 (4) 1,437 0 * 0
Jon L. Jansson 1,078 (6) 1,078 0 * 0
John B. Jasper 1,437 (4) 1,437 0 * 0
Robert D. Johnson and
Karen Johnson 1,437 (4) 1,437 0 * 0
Howard and Nancy Klein 1,428(16) 1,428 0 * 0
Robert J. Korkowski 3,591 (4) 3,591 0 * 0
Liberty Travel, Inc. 28,000 (5) 28,000 0 * 0
Nathan A. Low (18) 168,253 2,000(17) 166,253 3.1% 3.1%
Thomas R. McGuire 2,155 (4) 2,155 0 * 0
Thomas C. Mullery 4,311 (4) 4,311 0 * 0
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
Amount and Shares Percent of Class(3)
Nature Beneficially ---------------------------
Beneficial Shares to Owned Before After
Name Ownership(1)(2) Be Sold(2) After Offering Offering Offering
- ---- ---------------- ---------- -------------- -------- --------
<S> <C> <C> <C> <C>
Joseph Novogratz 3,593 (4) 3,593 0 * 0
A. Markman Peters 2,000(16) 2,000 0 * 0
Quasar International, C.V. 50,800 (5) 50,800 0 * 0
Salvani Investments,
Inc. (19) 85,000 (7) 85,000 0 1.5% 0
Willard C. Shull, III 1,437 (4) 1,437 0 * 0
David A. Smith 1,437 (4) 1,437 0 * 0
Theodore Sylvan 2,400(16) 2,400 0 * 0
21st Century Digital
Industries Fund, L.P. 1,000(16) 1,000 0 * 0
Union Bank of
Switzerland 12,000 (5) 12,000 0 * 0
Ming Fang Wang 740(16) 740 0 * 0
Donna L. Welsh 3,593 (4) 3,593 0 * 0
George L. Wirkkula 3,593 (4) 3,593 0 * 0
-------
TOTAL 404,900
=======
- ------------------------
</TABLE>
* Represents less than 1% of the issued and outstanding shares of
Common Stock.
(1) Unless otherwise noted, the Company believes that all persons named in
the table have sole investment power with respect to all shares of Common
Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the date hereof upon the exercise of warrants or options or
the conversion of convertible securities.
(2) Includes shares of Common Stock issuable upon exercise of warrants and
options, but does not include fractional shares to be purchased by the
Company.
(3) Based on 5,498,654 shares of Common Stock issued and outstanding as of
October 14, 1996.
(4) Represents shares of Common Stock issued or issuable upon the exercise of
warrants issued to note holders in November and December 1993 in a bridge
loan made by such investor to the Company.
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<PAGE> 44
(5) Represents shares issued and issuable upon the exercise of warrants
purchased pursuant to the Company's August 1995 private placement.
(6) Represents shares of Common Stock issuable upon exercise of warrants
currently held by registered representatives of Steichen which were
originally issued to Steichen in November and December 1993, as
compensation for its services as placement agent in a bridge loan
financing.
(7) Represents shares of Common Stock issuable upon the exercise of options
granted for services rendered.
(8) The address of these persons is in care of the Company, 14950 Martin
Drive, Eden Prairie, Minnesota 55344.
(9) S. Scott Crump owns 388,439 shares individually, and Lisa H. Crump owns
388,296 shares individually. Lisa and Scott Crump are husband and wife,
but disclaim beneficial ownership of each other's shares. They also
disclaim beneficial ownership of the 169,690 shares held by Ralph Crump,
Scott Crump's father and Lisa Crump's father-in-law, and the 169,690
shares held by Marjorie Crump, Scott Crump's mother and Lisa Crump's
mother-in-law. By virtue of their ownership of shares of Common Stock
and position with the Company, S. Scott Crump and Lisa Crump may be
deemed "parents" and "founders" of the Company as such terms are defined
under the federal securities laws.
(10) Includes 164,690 shares owned by Marjorie Crump, Mr. Crump's wife, of
which Mr. Crump disclaims beneficial ownership. Excludes the following
shares of which Mr. Crump disclaims beneficial ownership; 388,439 shares
held by Mr. Crump's son, S. Scott Crump, and 388,296 shares held by Mr.
Crump's daughter-in-law, Lisa H. Crump.
(11) Includes 49,997 shares of Common Stock issuable upon the exercise of
options currently exercisable by Mr. Wasserman. Excludes 20,003 shares of
Common Stock issuable pursuant to options granted to him, which become
exercisable through November 30, 1997. See "CERTAIN
TRANSACTIONS-Consulting Agreements."
(12) Includes 1,725 shares of Common Stock and 19,530 shares of Common Stock
issuable upon the exercise of options currently exercisable by Mr.
Schwieter. Excludes 10,780 shares issuable pursuant to options granted
to him, which become exercisable through August 1997. See "CERTAIN
TRANSACTIONS-Consulting Agreements."
(13) Includes 20,000 shares of Common Stock issuable upon the exercise of
options currently exercisable by Mr. Wilson. Excludes 10,000 shares
issuable pursuant to options granted to him, which become exercisable
through November 30, 1997.
(14) Includes 4,137 shares of Common Stock issuable upon the exercise of
employee stock options currently exercisable by Lawrence E. Roscoe - Vice
President, Software Development. Excludes 4,825 shares issuable pursuant
to options granted to him, which become exercisable through March 2002.
(15) Includes 2,000 shares of Common Stock owned by Mr. Moffatt. Excludes
23,000 shares issuable pursuant to options granted to him, which become
exercisable through March 2001.
(16) Represents shares of Common Stock issued and shares of Common Stock
issuable upon the exercise of warrants issued to investors in the
November 3, 1995 private placement.
(17) Brookehill Equities, Inc. was the placement agent for both the Company's
August 1995 and November 1995 private placements.
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<PAGE> 45
(18) Nathan A. Low is the Company's financial public relations consultant and
President of Sunrise Securities Corp., the finder in connection with the
Company's November 3, 1995 Private Placement.
(19) Salvani Investments, Inc. is the Company's international financial and
investment consultant.
CERTAIN TRANSACTIONS
CONSULTING AGREEMENTS
On December 15, 1994, the Company entered into a three-year consulting
agreement with Arnold J. Wasserman, a director of the Company, pursuant to
which Mr. Wasserman would provide services to develop the Company's OEM leasing
program and the sales and marketing to CT scanner manufacturers and would
perform such other services as are required by the Company. In consideration
for these services, Mr. Wasserman received a non-qualified option to purchase
40,000 shares of Common Stock at an exercise price of $5.375. Options to
purchase 3,333 shares became exercisable as of December 31, 1994, with an
additional 3,333 vesting on the last day of each calendar quarter through
September 30, 1997. The options expire on December 14, 1999, and are covered
by the S-8 Registration Statement. No such options have been exercised.
On April 1, 1995, the Company entered into a two-year consulting
agreement with Clifford Schwieter, a director of the Company, pursuant to which
Mr. Schwieter provides marketing and technical consulting services to the
Company. In consideration for these services, Mr. Schwieter would receive on a
per project basis, between $0 and $5,000 per month depending on the project.
In addition, Mr. Schwieter received non-qualified stock options, pursuant to
Plan 3, to purchase 15,000 shares of Common Stock at an exercise price of $6.81
per share. Options to purchase 3,750 of the shares vested on each of July 1,
1995, October 1, 1995, January 1, 1996 and April 1, 1996. The options expire
on April 2, 2000, and are covered by the S-8 Registration Statement. Options
to purchase 11,250 of such shares were exercised in February 1996.
IBM ASSET PURCHASE
The Company purchased certain rapid prototyping assets (the "Assets")
from IBM, on January 1, 1995, pursuant to an Assignment and Sale of Rapid
Prototyping Technology and Related Assets Agreement.
The Assets acquired by the Company from IBM comprised both tangible and
intangible assets. All of the intangible assets related to rapid prototyping
technology developed by IBM and consisted of three patents, eight patent
applications, documentation (technical reference handbooks, technical
disclosures, publications and other written material used in connection with
such rapid prototyping technology), know- how, (including trade secrets,
technical information and data, test reports and data, engineering, scientific
and practical information and formula, equipment designs and drawings, and
commercial sources of information and material), computer software (including
programming codes), and certain
-45-
<PAGE> 46
licensing agreements. The tangible personal property acquired comprised
machinery, equipment, furniture, supplies, spare parts, tools, prototypes and
components of rapid prototyping devices and other related assets (the
"Non-Technology Assets").
In consideration for the Assets, the Company issued 500,000 shares of its
Common Stock to IBM and agreed to pay IBM an aggregate of $500,000. Of the
$500,000 to be paid, $285,284.64 was paid at closing in cash for the patents,
and the balance of $214,715.36 is being paid in installments through September
1999 as lease payments for certain of the Non-Technology Assets which support
the development of the rapid prototyping technology. The lease terms for the
Non-Technology Assets are set forth in an Equipment Lease Agreement between the
parties dated as of January 1, 1995. In addition, the Company and IBM entered
into a Representations and Registration Rights Agreement wherein the Company
granted IBM "piggyback" registration rights with respect to the 500,000 shares
of Common Stock acquired by it, commencing at any time after January 1, 1997,
and two "demand" registration rights, commencing at any time after the January
1, 1998.
ASSIGNMENT OF PATENT APPLICATIONS
On October 23, 1989, S. Scott Crump, the President and Chief Executive
Officer of the Company, assigned to the Company his rights to a patent
application for an apparatus and method for creating three- dimensional objects
in exchange for the original issuance of 70,000 shares of Common Stock in
connection with the initial organization of the Company.
On June 5, 1992, Mr. Crump assigned to the Company his rights to a patent
application for a modeling apparatus for three-dimentional objects for no
additional consideration.
On June 1, 1994, Mr. Crump and three other employees of the Company
assigned to the Company a patent application for a process and apparatus of
support removal for three-dimentional modeling. As employees of the Company,
each of the assignors received a payment of $500 under the Company's patent
bonus plan in connection with the assignment of such patent applications.
Patents were granted pursuant to both patent applications assigned by Mr.
Crump. The third patent application is pending with the Patent Office.
-46-
<PAGE> 47
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 15,000,000 shares
of Common Stock, $.01 par value per share, of which 5,498,654 shares were
outstanding as of October 14, 1996.
COMMON STOCK
As of October 14, 1996, there were approximately 145 stockholders of
record of the Company's Common Stock. The holders of Common Stock (i) have
equal ratable rights to dividends from funds legally available therefor, when,
as and if declared by the Board of Directors of the Company; (ii) are entitled
to share ratably in all of the assets of the Company available for distribution
to holders of Common Stock upon liquidation, dissolution or winding up of the
affairs of the Company; (iii) do not have preemptive, subscription or conversion
rights, and there are no redemption or sinking fund provisions applicable
thereto; and (iv) are entitled to one vote per share on all matters on which
stockholders may vote at all meetings of stockholders. All shares of Common
Stock now outstanding are fully paid and non-assessable.
The holders of shares of Common Stock of the Company do not have
cumulative voting rights, which means that the holders of more than 51% of such
outstanding shares, voting for the election of Directors of the Company, can
elect all of the Directors to be elected, if they so choose and in such event,
the holders of the remaining shares will not be able to elect any of the
Company's Directors.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is North
American Transfer Co., 147 W. Merrick Road, Freeport, NY 11520. The Company
maintains its own warrant register.
SHARES ELIGIBLE FOR FUTURE SALE
Of the Company's 5,498,654 issued and outstanding shares of Common Stock,
as of the date of this Prospectus, approximately 2,188,653 shares are
"restricted securities" as such term is defined under Rule 144 under the
Securities Act; 210,269 of those restricted securities may be sold under
currently effective registration statements; 217,283 of those restricted
securities may presently be sold under Rule 144, while the remaining 1,761,011
restricted securities are subject to legal and contractual restrictions on sales
that expire between October 20, 1996, and May 26, 1997. After those contractual
restrictions expire, 1,166,115 such shares may be sold under Rule 144, subject
to restrictions on sales by affiliates. The Company has issued warrants and
non-employee options to purchase an aggregate of 345,739 shares of Common Stock,
263,384 of which are currently exercisable and may be sold pursuant to the
registration statement of which this Prospectus is a part. Warrants to purchase
18,000 shares of Common Stock are currently exercisable, but the shares issuable
upon exercise are not included in that registration statement. Warrants to
purchase the remaining 64,355 shares of Common Stock become exercisable in 1996
and have one demand and certain piggyback registration rights. If these
registration rights are exercised and the Commission declares effective a
corresponding registration statement, all 64,355 such shares will become
eligible for sale without restriction. In addition, options to purchase 936,652
shares of Common Stock have been granted pursuant to the Company's three
employee stock option plans, 800,000 of which are presently covered by the
Company's S-8 Registration Statement, and the remainder of which the Company
intends to register for sale in an additional registration statement on Form
S-8. At present, options to purchase 473,314 shares of Common Stock are
exercisable; options to purchase 281,927 such shares have been exercised, all of
which are eligible for sale; and 181,411 shares become exercisable periodically
through 2002. See "RISK FACTORS--Adverse Effect of Public Sales of Additional
Shares."
-47-
<PAGE> 48
The Company is unable to predict the effect that sales made pursuant to
the Registration Statement of which this Prospectus is a part, any other
registration statement of the Company, Rule 144 or otherwise may have on the
then existing market price of the Company's securities. Nevertheless, the
possibility exists that the sale of any shares of Common Stock, including the
Shares, or even the potential of such sales, may have a depressive effect on
the price of the Company's securities in any public trading market. See "RISK
FACTORS--Adverse Effect of Public Sales of Additional Shares" and "PRINCIPAL
AND SELLING SECURITYHOLDERS."
PLAN OF DISTRIBUTION
The Selling Securityholders are offering the Shares for their own account
and not for the account of the Company. The Shares may be sold from time to
time by the Selling Securityholders directly to purchasers or, alternatively,
may be offered from time to time through agents, brokers, dealers or
underwriters, who may receive compensation in the form of commissions or
discounts from the Selling Securityholders. Sales of the Shares may be made in
one or more transactions on the PSE, on NASDAQ or in privately negotiated
transactions or otherwise, and such sales may be made at the market price
prevailing at the time of sale, a price related to such prevailing market price
or a negotiated price. The sale of the Shares is subject to the Prospectus
delivery and other requirements of the Act.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the shares of Common Stock of the Company offered by this
Prospectus may not simultaneously engage in market making activities with
respect to the Common Stock of the Company during the applicable "cooling off"
periods prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Selling Securityholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder including, without limitation, Rule 10b-6, which provisions may
limit the timing of purchases and sales of Common Stock by the Selling
Securityholders. In particular, Rule 10b-6 would restrict market makers that
are also Selling Securityholders from making a market in the Common Stock for a
period of two days prior to the distribution of their Shares and while they are
engaged in such distribution. Such a limitation, while in effect, could impair
the liquidity and market price of the Common Stock.
To the extent required, the Company will use its best efforts to file,
during any period in which offers or sales are being made, either one or more
amendments or supplements to this Prospectus or a new registration statement
with respect to the Shares to describe any material information with respect to
the plan of distribution not previously disclosed in this Prospectus, including
the name or names of any underwriters, dealers or agents, if any, the purchase
price paid by the underwriter for Shares purchased from a Selling
Securityholder, and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
AMENDMENTS TO PROSPECTUS
-48-
<PAGE> 49
Section 10 of the Securities Act provides that if this Prospectus is used
more than nine months after its date, the information contained herein shall be
as of a date not more than 16 months prior to its use. Under the terms of the
Company's agreements with the Selling Securityholders, the Company is required
to file amendments and supplements to the registration statement of which this
Prospectus is a part to maintain an effective registration statement until such
time as all of the Shares may be sold pursuant to an exemption from the
registration requirements of the Securities Act. Accordingly, the Company will
be required to amend or supplement this Prospectus from time to time to update
the financial and other information contained herein as required by Section 10
of the Securities Act. If this Prospectus is not so amended or supplemented,
then the registration statement of which it is a part will cease to be
effective, and the Selling Securityholders may only sell unsold shares pursuant
to a subsequently effective registration statement under the Securities Act or
an exemption from registration.
LEGAL MATTERS
Snow Becker Krauss P.C., 605 Third Avenue, New York, New York 10158 is
acting as counsel to the Company and will pass upon the legality of the shares
of Common Stock offered hereby.
EXPERTS
The financial statements of the Company for the year ended December 31,
1994 and 1995 have been included herein in reliance upon the report of
Rothstein, Kass & Company, P.C., independent public accountants, upon the
authority of said firm as an expert in accounting and auditing.
-49-
<PAGE> 50
STRATASYS, INC.
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
(Audited)
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
INDEPENDENT AUDITOR'S REPORT F-2
FINANCIAL STATEMENTS:
BALANCE SHEETS F-3
STATEMENTS OF OPERATIONS F-4
STATEMENTS OF STOCKHOLDERS' EQUITY F-5
STATEMENTS OF CASH FLOWS F-6-7
NOTES TO FINANCIAL STATEMENTS F-8-21
SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
BALANCE SHEETS F-22
STATEMENTS OF OPERATIONS F-23
STATEMENTS OF CASH FLOWS F-24
NOTES TO FINANCIAL STATEMENTS F-25
</TABLE>
F-1
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
Board of Directors
Stratasys, Inc.
We have audited the accompanying balance sheets of Stratasys, Inc. as of
December 31, 1995 and 1994 and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stratasys, Inc. as of December
31, 1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Rothstein, Kass & Company, P.C.
Roseland, New Jersey
February 22, 1996
F-2
<PAGE> 52
STRATASYS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
===================================================================================================================================
DECEMBER 31, 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,726,056 $ 4,635,209
Marketable securities 6,309,048
Accounts receivable, less allowance for doubtful
accounts of $130,000 in 1995 and $20,000 in 1994 2,769,010 879,090
Inventories 907,319 446,872
Prepaid expenses 119,423 33,688
---------------------------------------------
Total current assets 14,830,856 5,994,859
---------------------------------------------
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization 1,112,328 392,793
---------------------------------------------
OTHER ASSETS
Deposits 41,124 354,881
Intangible assets, less accumulated amortization 3,910,960 66,297
---------------------------------------------
3,952,084 421,178
---------------------------------------------
$ 19,895,268 $ 6,808,830
=============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Obligations under capital leases, current portion $ 157,449 $ 67,682
Accounts payable and other current liabilities 1,661,517 720,560
Unearned maintenance revenues 371,570 115,322
---------------------------------------------
Total current liabilities 2,190,536 903,564
---------------------------------------------
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 182,520 81,358
---------------------------------------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, Series A, voting, $.01 par value,
authorized, issued and outstanding 264,000 share 2,640 2,640
Common stock, $.01 par value,
authorized 8,000,000 shares,
issued and outstanding 4,233,876 shares in 1995 and
2,871,210 shares in 1994 42,339 28,712
Capital in excess of par value 22,024,604 10,710,951
Accumulated deficit (4,547,371) (4,918,395)
---------------------------------------------
Total stockholders' equity 17,522,212 5,823,908
---------------------------------------------
$ 19,895,268 $ 6,808,830
=============================================
</TABLE>
See accompanying notes to financial statements. F-3
<PAGE> 53
STRATASYS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
==================================================================================================================================
YEARS ENDED DECEMBER 31, 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SALES $ 10,275,186 $ 3,790,828
COST OF SALES 3,906,841 1,612,121
---------------------------------------------
GROSS PROFIT 6,368,345 2,178,707
---------------------------------------------
COSTS AND EXPENSES
Research and development 1,995,696 1,023,752
Selling, general and administrative 4,231,571 2,255,651
---------------------------------------------
6,227,267 3,279,403
---------------------------------------------
OPERATING INCOME (LOSS) 141,078 (1,100,696)
OTHER INCOME (EXPENSE)
Interest and other income 303,350 40,242
Interest expense (50,404) (73,315)
---------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE 394,024 (1,133,769)
INCOME TAX EXPENSE 23,000
---------------------------------------------
NET INCOME (LOSS) $ 371,024 $ (1,133,769)
=============================================
INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE
Primary and fully diluted $ 0.09 $ (0.69)
=============================================
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Primary 4,022,731 1,650,106
=============================================
Fully diluted 4,046,123 1,650,106
=============================================
</TABLE>
See accompanying notes to financial statements F-4
<PAGE> 54
STRATASYS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
==========================================================================================================================
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL IN
PREFERRED STOCK COMMON STOCK EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994 - $ - 1,310,833 $13,108 $3,258,422 $ (3,784,626) $ (513,096)
RECLASSIFICATION OF REDEEMABLE
CUMULATIVE PREFERRED STOCK 264,000 2,640 1,198,560 1,201,200
ISSUANCE OF COMMON STOCK TO
PREFERRED STOCKHOLDERS 45,275 453 (453)
STOCK OPTIONS ISSUED FOR SERVICES 63,600 63,600
SALE OF COMMON STOCK, less related
expenses 1,515,102 15,151 6,190,822 6,205,973
NET LOSS (1,133,769) (1,133,769)
-------------------------------------------------------------------------------------
BALANCES, December 31, 1994 264,000 2,640 2,871,210 28,712 10,710,951 (4,918,395) 5,823,908
COMMON STOCK ISSUED IN EXCHANGE FOR
INTANGIBLE ASSETS 500,000 5,000 2,495,000 2,500,000
SALE OF COMMON STOCK, less related
expenses 862,666 8,627 8,818,653 8,827,280
NET INCOME 371,024 371,024
-------------------------------------------------------------------------------------
BALANCES, December 31, 1995 264,000 $ 2,640 4,233,876 $ 42,339 $ 22,024,604 $ (4,547,371) $17,522,212
=====================================================================================
</TABLE>
See accompanying notes to financial statements F-5
<PAGE> 55
STRATASYS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
========================================================================================================================
YEARS ENDED DECEMBER 31, 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 371,024 $ (1,133,769)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 226,734 92,239
Amortization of intangibles 213,362 12,488
Bad debts 111,154 20,000
Amortization of discounts on marketable securities (18,798)
Stock options issued for services 63,600
Depreciated cost of machinery and equipment sold
and included in cost of sales 40,768
Increase (decrease) in cash attributable to changes
in assets and liabilities:
Accounts receivable (2,001,074) (465,854)
Inventories (460,447) (210,105)
Prepaid expenses (85,735) 21,685
Accounts payable and other current liabilities 940,957 519,245
Unearned maintenance revenues 256,248 115,322
-----------------------------------
NET CASH USED IN OPERATING ACTIVITIES (405,807) (965,149)
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for deposits, net (29,056) (336,412)
Payments for intangible assets (1,215,212) (16,212)
Acquisition of property and equipment (683,389) (143,321)
Proceeds from sale of machinery and equipment 58,264
Proceeds from sale of marketable securities 6,349,743
Acquisition of marketable securities (12,639,993)
-----------------------------------
NET CASH USED IN INVESTING ACTIVITIES (8,159,643) (495,945)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 8,827,280 6,205,973
Repayments of notes payable (600,000)
Repayments of obligations under capital leases (170,983) (46,591)
-----------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,656,297 5,559,382
-----------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 90,847 4,098,288
CASH AND CASH EQUIVALENTS, beginning of year 4,635,209 536,921
-----------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 4,726,056 $ 4,635,209
===================================
</TABLE>
See accompanying notes to financial statements. F-6
<PAGE> 56
STRATASYS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
=======================================================================================================================
YEARS ENDED DECEMBER 31, 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, cash paid during the year for interest $ 50,404 $ 73,315
===================================
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Machinery and equipment acquired under capital
lease obligations $ 361,912 $ 134,866
===================================
Issuance of common stock in exchange for
intangible assets $ 2,500,000 $ -
===================================
</TABLE>
See accompanying notes to financial statements. F-7
<PAGE> 57
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Operations
Stratasys, Inc. (the "Company")
develops, manufactures and markets a
family of rapid prototyping systems
(RPS) and devices that permit
engineers and designers to create
physical models and prototypes, made
of various materials, utilizing three
dimensional Computer Aided Design
("3D CAD") files at a CAD
workstation. The Company sells these
devices worldwide.
Fair Value of Financial Instruments
The fair value of the Company's assets
and liabilities, which qualify as
financial instruments under Statement
of Financial Accounting Standards
(SFAS) No. 107, "Disclosures about
Fair Value of Financial Instruments,"
approximates the carrying amounts
presented in the balance sheet.
Cash Equivalents
Cash equivalents include all highly
liquid instruments having a maturity
of less than three months from the
purchase date. Cash equivalents
include a U.S. Treasury money market
account.
Marketable Securities
The Company records its marketable
securities in accordance with SFAS
No. 115, "Accounting for Certain
Investments in Debt and Equity
Securities." Marketable securities
have been categorized as available
for sale and, as a result, are stated
at fair value. Realized gains or
losses are determined on the specific
identification method and are
reflected in income.
Inventories
Inventories are stated at the lower of
cost, on the first in, first out
method, or market.
F-8
<PAGE> 58
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED) Impairment of Long-Lived Assets
The Company periodically assesses the
recoverability of the carrying
amounts of long-lived assets,
including intangible assets. A loss
is recognized when expected
undiscounted future cash flows are
less than the carrying amount of the
asset. The impairment loss is the
difference by which the carrying
amount of the asset exceeds its fair
value.
Property and Equipment
Property and equipment is stated at
cost.
Depreciation and Amortization
Depreciation and amortization is
computed using the straight line
method over the estimated useful
lives of the assets ranging from 3- 5
years.
Intangible Assets
Intangible assets are being amortized
over their estimated useful lives by
the straight line method as follows:
<TABLE>
<S> <C>
RPS Technology 11 years
Capitalized software development costs 3 years
Patents 17 years
Copyrights and licensed internal code 5 years
</TABLE>
The costs of software development,
including significant product
enhancements, incurred subsequent to
establishing technological
feasibility have been capitalized in
accordance with SFAS No. 86,
"Accounting for the Costs of Computer
Software to be Sold, Leased or
Otherwise Marketed." Costs incurred
prior to establishment of
technological feasibility are charged
to research and development expense.
F-9
<PAGE> 59
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED) Unearned Maintenance Revenues
Maintenance revenues are amortized
over the term of the related
maintenance contracts, principally one
year.
Revenue Recognition
The Company recognizes revenues from
the sale of RPS machines when
shipped.
Software revenues are recorded based
on Statement of Position 91-1 (SOP
91-1), "Software Revenue Recognition,"
which provides for recognizing
revenues from software product sales
when a non- cancelable license
agreement has been signed, the product
has been delivered, all significant
obligations have been satisfied and
collectibility of the receivable is
certain. The Company sells its
software as an integral part of the
RPS machines.
Service revenues, excluding
maintenance contracts, are recognized
at the time the services are
performed.
Research and Development Costs
In accordance with SFAS No. 2,
"Accounting for Research and
Development Costs," expenditures for
research, development and engineering
of products and manufacturing
processes are expensed as incurred.
Income Taxes
The Company complies with SFAS No.
109, "Accounting for Income Taxes,"
which requires an asset and liability
approach to financial reporting of
income taxes. Deferred income tax
assets and liabilities are computed
annually for differences between
financial statement and tax bases of
assets and liabilities that will
result in taxable or deductible
amounts in the future, based on
enacted tax laws and rates applicable
to the periods in which the
differences are expected to effect
taxable income. Valuation allowances
are established, when necessary, to
reduce the deferred income tax assets
to the amount expected to be realized.
F-10
<PAGE> 60
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED) Income (Loss) Per Common and Common
Equivalent Share
Income (loss) per common and common
equivalent share is based upon the
net income (loss) divided by the
weighted average number of common and
common equivalent shares outstanding.
Common equivalent shares include
convertible preferred stock, stock
options and warrants, if dilutive.
The 1995 fully diluted weighted
average number of common and common
equivalent shares outstanding assumes
shares issued from the exercise of
stock options and warrants to have
been outstanding for the full year.
In 1994, common equivalent shares
were anti-dilutive and were deemed
not to be converted or exercised, and
therefore not considered in the
computation of loss per common and
common equivalent share. All shares
and per share data have been restated
to give effect to the stock split
(see Note 15).
Use of Estimates
The preparation of financial
statements in conformity with
generally accepted accounting
principles requires management to make
estimates and assumptions that affect
the reported amounts of assets and
liabilities and disclosure of
contingent assets and liabilities at
the date of the financial statements
and the reported amounts of revenues
and expenses during the reporting
period. Actual results could differ
from those estimates.
Reclassifications
Certain items have been reclassified
in 1994 to conform to the 1995
presentation.
2. ACQUISITION OF ASSETS On January 1, 1995, the Company
purchased from IBM intangible and
other assets relating to a RPS. At
the acquisition date, the RPS was
both technologically and economically
feasible. The Company paid $342,813
in cash, including related
acquisition costs of $57,528 and
issued 500,000 shares of restricted
common stock with an ascribed value
of $2,500,000 ($5 per share).
Additionally, the Company entered
into a capital lease for the
acquisition of office furniture and
equipment. The lease provides for
quarterly payments in varying amounts
through September 1999, totaling
$214,715. The Company has recorded
office furniture and equipment, and
the related capital lease obligation,
at $184,714, reflecting a discount of
the payments at an interest rate of
10%.
F-11
<PAGE> 61
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
2. ACQUISITION OF ASSETS
(CONTINUED) The purchase price of the intangible
assets has been allocated as follows:
<TABLE>
<S> <C>
RPS Technology $ 2,558 532
Patents 213,211
Patents Applications 14,214
Copyrights and licensed internal code 56,856
---------------
$ 2,842,813
===============
</TABLE>
In accordance with Accounting
Principles Board Opinion (APB) 16 and
APB 17, the RPS technology will be
amortized over a period of eleven
(11) years, which the Company
believes to be the economic life of
the technology. Patents will be
amortized over their remaining
economic lives, and applications, if
denied, will be expensed at that
time. Copyrights and internal code
will be amortized over a five-year
period.
At December 31, 1995, the Company had
not made any sales of a RPS using the
technology purchased from IBM.
Shipments of this product are
expected to commence in 1996. The
Company is presently making
improvements on the manufacturing
process to reduce costs and enhance
the software used in the machine to
simplify its operation and to improve
its quality.
In accordance with SFAS No. 86, the
Company capitalized $714,574 of costs
incurred through December 31, 1995,
relating to the enhancement of the
operating software for the RPS.
3. ACCOUNTS RECEIVABLES At December 31, 1995 and 1994,
accounts receivable included balances
due from foreign entities of
approximately $981,000 and $488,000,
respectively.
4. MARKETABLE SECURITIES Marketable securities have been
categorized as available for sale and
are recorded in accordance with SFAS
No. 115. During 1995, the Company
had no significant realized or
unrealized gains or losses.
F-12
<PAGE> 62
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
5. INVENTORIES Inventories consist of the following
at December 31,:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Finished goods $ 329,040 $ 86,567
Work in process 104,787 41,554
Raw materials 473,492 318,751
-------------------------------
$ 907,319 $ 446,872
===============================
</TABLE>
6. PROPERTY AND EQUIPMENT Property and equipment consists of
the following at December 31,:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Machinery and equipment $ 338,911 $ 207,444
Computer equipment and
software 336,096 90,633
Office equipment 110,194 58,290
Leasehold improvements 137,331 10,866
Equipment under capital leases 586,549 224,637
--------------------------------
1,509,081 591,870
Accumulated depreciation
and amortization (including
$150,953 in 1995 and $101,901
in 1994 under capital leases) 396,753 199,077
--------------------------------
$ 1,112,328 $ 392,793
================================
</TABLE>
7. INTANGIBLE ASSETS Intangible assets consist of the
following at December 31,:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C>
RPS Technology $ 2,558,532 $ -
Capitalized software
development costs 1,138,499
Patents 376,609 72,471
Copyrights and licensed
internal code 56,586
Other 11,441 11,441
--------------------------------
4,141,667 83,912
Accumulated amortization 230,977 17,615
--------------------------------
$ 3,910,690 $ 66,297
================================
</TABLE>
F-13
<PAGE> 63
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
7. INTANGIBLE ASSETS
(CONTINUED) At December 31, 1995, capitalized
computer software development costs
were not amortized since the products
were not available for general
release to customers.
Included in research and development
costs for the years ended December
31, 1995 and 1994 are computer
software development expenditures of
$89,168 and $481,803, respectively.
8. ACCOUNTS PAYABLE AND
OTHER CURRENT
LIABILITIES Accounts payable and other current
liabilities consist of the following
at December 31,:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Trade $ 905,707 $ 529,557
Compensation and related
benefits 466,968 123,259
Reserve for warranty expenses 149,803 10,800
Other 139,039 56,944
--------------------------------
$ 1,661,517 $ 720,560
================================
</TABLE>
9. OBLIGATIONS UNDER
CAPITAL LEASES Aggregate minimum lease payments for
obligations under capital leases in
the years subsequent to December 31,
1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1996 $ 193,329
1997 164,767
1998 29,547
1999 1,680
---------------
Total minimum lease payments 389,323
Less amounts representing interest 49,354
---------------
Present value of minimum lease payments 339,969
Less current portion 157,449
---------------
$ 182,520
===============
</TABLE>
F-14
<PAGE> 64
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
10. INCOME TAXES The tax effects of principal
temporary differences are shown in
the following table at December 31,:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net operating loss
carryforwards $ 1,475,000 $ 1,895,000
Depreciation (92,000) (44,000)
Amortization 12,000 -
Allowance for doubtful accounts 53,000 8,000
Reserve for warranty expenses 60,000 -
Federal minimum tax credit
carryforwards 7,000 -
Research and development tax
credit carryforwards 295,000 -
--------------------------------
1,810,000 1,859,000
Valuation allowance for
deferred tax asset (1,810,000) (1,859,000)
--------------------------------
$ - $ -
================================
</TABLE>
The net deferred tax asset included
the following amounts of deferred tax
assets and liabilities at December
31,:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets $ 1,902,000 $ 1,903,000
Deferred tax liabilities (92,000) (44,000)
Valuation allowances for
deferred tax asset (1,810,000) (1,859,000)
---------------------------------
Net deferred tax asset $ - $ -
=================================
</TABLE>
At December 31, 1995, the Company had
federal and state net operating loss
carryforwards of approximately
$3,760,000 and $4,040,000,
respectively, which can be utilized
against future taxable income and
expire in various years through the
year 2009.
At December 31, 1995, the Company had
research and development tax credit
carryforwards of approximately
$295,000, which can be utilized
against future federal income tax and
expire in various years through 2010.
The components of current income tax
expense for the year ended December
31, 1995 are as follows:
<TABLE>
<S> <C>
State and other $ 23,000
===============
</TABLE>
F-15
<PAGE> 65
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
10. INCOME TAXES
(CONTINUED) A reconciliation of income tax
expense to the federal statutory rate
is as follows for the years ended
December 31,:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Federal statutory rate 34.0 % (34.0) %
State income tax (credit) 5.8 (6.5)
Net operating loss
carryforwards (utilized) (34.0) 40.5
----------------------------
Effective income tax rate 5.8 % 0.0 %
============================
</TABLE>
11. RELATED PARTY TRANSACTION In April 1995, the Company entered
into a two-year consulting agreement
with a director of the Company,
pursuant to which the director is to
provide marketing and technical
consulting services. In
consideration for these services, the
director receives on a per project
basis, up to $5,000 per month.
During 1995, the Company incurred
consulting fees relating to this
agreement of $55,000. In addition,
the director received non-qualified
stock options, pursuant to Plan 3
(see Note 14), to purchase 15,000
shares of the Company's common stock
at an exercise price of $6.81 per
share. The options expire on April 1,
2000.
12. COMMITMENTS The Company leases its facilities
under leases which expire between
February 1998 and July 1999.
Aggregate future minimum annual rental
payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1996 $ 211,000
1997 241,000
1998 166,000
1999 31,000
</TABLE>
F-16
<PAGE> 66
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
12. COMMITMENTS (CONTINUED) Rent expense for the years ended
December 31, 1995 and 1994 was
approximately $222,000 and $68,000,
respectively.
The Company entered into a three-year
employment agreement, effective
October 20, 1994, with an officer
providing for minimum annual salary
of $85,000. In August 1995, the
Board of Directors approved an
increase of the minimum annual salary
to $95,000.
13. PREFERRED STOCK In connection with the public
offering (see Note 15), the preferred
stockholder amended the preferred
stock agreement to forfeit the rights
to mandatory redemption, and the
rights to all unpaid and future
dividends. In connection with this
transaction, the preferred
stockholder was issued 32,339 shares
of common stock and converted its
common stock purchase warrants into
12,936 shares of common stock. In
the event of liquidation, the
preferred stockholder will receive
$1,201,200, the original purchase
price paid for the preferred stock.
The preferred stock is convertible
into the Company's common stock at
$3.17 per share (equivalent to a
conversion rate of 1.43726 shares of
common stock for each share of
preferred stock).
14. STOCK OPTIONS AND
WARRANTS In October 1990, the Company adopted
the Stratasys, Inc. Employee Stock
Option Plan #1 (Plan 1), which
expires April 19, 2001. The total
number of shares of common stock
which may be purchased by granting of
options is 100,608 shares, all of
which have been granted. Options to
purchase 34,062 shares of common
stock have been exercised, of which
29,750 were exercised in 1995.
Under the amended and restated
Stratasys, Inc. 1994 Stock Plan (Plan
2), adopted in August 1994, all of
the options, authorized under Plan 2,
to purchase 199,392 shares of common
stock have been granted. In 1995,
options to purchase 574 shares of
common stock under Plan 2 were
exercised.
In December 1994, the Stratasys, Inc.
1994 -2 Stock Plan (Plan 3) was
adopted to grant options to purchase
500,000 shares of the Company's
common stock. Since its adoption,
options to purchase an aggregate of
395,538 shares of common stock have
been granted and options to purchase
12,000 shares were exercised in 1995.
All options for the above plans were
granted at a price not less than the
fair market value of the Company's
common stock at dates of grant,
except as noted below.
F-17
<PAGE> 67
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
14. STOCK OPTIONS AND
WARRANTS (CONTINUED) During 1994, the Company granted
options under Plan 3 to purchase
12,000 shares of common stock at a
price of $.01 per share, in exchange
for services provided by a
consultant. The difference between
the fair market value of the shares
under option and the option price,
was $63,600, and was charged to
operations.
In May 1995, the Company entered into
a consulting agreement which granted
the consultant non-qualified stock
options to purchase 50,000 shares of
common stock at an exercise price of
$7.00 per share, which options were
immediately exercisable and expire
two years from the date of issue. In
July 1995, the agreement was amended
providing for the grant of options to
purchase an additional 35,000 shares
of common stock, at an exercise price
of $12.00 per share. These options
were immediately exercisable and
expire two years from the date of
issue. The option price per share
for both grants was not less than the
fair market value of the Company's
common stock at the date of grant.
Information relating to all stock
options during 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
OPTION PRICE
NUMBER PER SHARE TOTAL
OF SHARES AVERAGE PRICE
<S> <C> <C> <C>
Shares under option
at January 1, 1994 91,985 $ 1.59 $ 146,256
Granted in 1994 321,804 5.15 1,658,594
------------------------------------------
Shares under option
at December 31, 1994 413,789 4.36 1,804,850
Granted in 1995 362,437 18.23 6,607,691
Exercised in 1995 (42,324) 1.21 (51,051)
------------------------------------------
Shares under option
at December 31, 1995 733,902 $ 11.39 $ 8,361,490
==========================================
Shares exercisable at
December 31, 1995 406,121 $ 10.16 $ 4,127,944
==========================================
</TABLE>
F-18
<PAGE> 68
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
14. STOCK OPTIONS AND
WARRANTS (CONTINUED) Former noteholders and the placement
agent received warrants to purchase
up to 129,353 shares of the Company's
common stock at $5.80 per share. The
warrants expire on November 12, 1998.
In June 1994, the Company entered into
a consulting agreement which provided
for the consultant to receive
warrants to purchase up to 250,000
shares of the Company's common stock
at $3.00 per share and an additional
150,000 shares of the Company's
common stock at $8.00 per share. The
warrants expire seven years from the
date of issue which was October 28,
1994.
In October 1994, in connection with
the public offering, the underwriter
purchased warrants to acquire up to
120,000 shares of the Company's
common stock at $7.50 per share. The
warrants will expire five years from
the date of issue.
In August 1995, the Company issued, in
connection with the sale of the
Company's common stock, warrants to
purchase 67,067 shares of the
Company's common stock at an exercise
price of $18.00 per share. The
warrants expire July 31, 1998.
In November 1995, the Company issued,
in connection with the sale of the
Company's common stock, warrants to
purchase 78,710 and 39,355 shares of
the Company's common stock at $21.00
and $14.00 per share, respectively.
The warrants expire November 3, 1998
and February 29, 1996, respectively,
the latter having been extended from
the original January 31, 1996
expiration date. The placement agent
received warrants to purchase 39,355
shares of the Company's common stock,
at an exercise price of $14.00 per
share. The warrants become
exercisable on November 3, 1996 and
expire five years from date of issue.
The Company, as part of a finder's
fee, issued to a broker-dealer
warrants to purchase 25,000 shares of
the Company's common stock at $14.00
per share. The warrants become
exercisable on November 3, 1996 and
expire five years from date of issue.
In November 1995, the Company, as part
of a facility lease agreement, issued
to a landlord warrants to purchase
5,000 shares of the Company's common
stock at $15.38 per share and expire
five years from date of issue.
F-19
<PAGE> 69
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
14. STOCK OPTIONS AND
WARRANTS (CONTINUED) Information relating to all warrants
During 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
WARRANT PRICE
NUMBER PER SHARE TOTAL
OF SHARES AVERAGE PRICE
<S> <C> <C> <C>
Shares under warrants
at January 1, 1994 129,353 $ 5.80 $ 750,247
Granted in 1994 520,000 5.48 2,850,001
------------------------------------------
Shares under warrants
at December 31, 1994 649,353 5.54 3,600,248
Granted in 1995 254,487 17.25 4,388,956
Exercised in 1995 (4,792) 5.80 (27,794)
-------------------------------------------
Shares under warrants
at December 31, 1995 899,048 $ 8.86 $ 7,961,410
===========================================
Shares exercisable at
December 31, 1995 834,693 $ 8.46 $ 7,060,440
===========================================
</TABLE>
15. COMMON STOCK The Company's certificate of
incorporation was amended in July
1994 to increase the number of
authorized shares of common stock to
5,000,000. In August 1994, the
Company had a stock split, and issued
1.43726 shares for each share of the
Company's common stock outstanding.
Accordingly, all numbers of common
shares and per share data have been
restated to reflect the stock split.
Between July and September 1994, the
Company sold 135,102 shares of its
common stock for $470,000.
On October 20, 1994, the Company
completed a public offering for the
sale of 1,380,000 shares of its
common stock at $5.00 per share for
the aggregate proceeds (net of
discounts, commissions, and expenses)
of approximately $5,736,000.
In May 1995, the Company's Certificate
of Incorporation was amended to
increase the number of authorized
shares of common stock to 8,000,000.
F-20
<PAGE> 70
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
15. COMMON STOCK (CONTINUED) During 1995, the Company sold 815,550
shares of its common stock,
privately, for aggregate proceeds
(net commissions and expenses) of
approximately $8,748,000. In
connection with some of the sales of
its common stock the Company issued
warrants (see Note 14).
During 1995, stock options to purchase
42,324 shares of the Company's common
stock were exercised with proceeds to
the Company of approximately $51,000.
In addition, warrants to purchase
4,792 shares of the Company's common
stock were exercised with proceeds to
the Company of approximately $28,000.
16. FOREIGN SALES Export sales were as follows for the
years ended December 31,:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Canada $ 493,000 $ -
Europe 3,098,000 1,080,000
Asia 1,302,000 200,000
Africa 75,000 164,000
Australia 112,000
----------------------------------
$ 5,080,000 $ 1,444,000
==================================
</TABLE>
17. CONCENTRATION OF CREDIT
RISK The Company's cash, including a U.S.
Treasury money market account of
$4,637,403, is maintained in a
financial institution, and at times
exceeds the Federal Deposit Insurance
Corporation coverage of $100,000.
Management regularly monitors the
financial condition of the financial
institution in order to keep the
potential risk to a minimum.
18. SUBSEQUENT EVENT In 1996, the holder of the preferred
stock converted all 264,000 shares of
the Company's preferred stock (see
Note 13) into 379,437 shares of the
Company's common stock.
In 1996, the Company issued
approximately 174,000 shares of the
Company's common stock, upon the
exercise of stock options and
warrants, for aggregate proceeds of
approximately $1,500,000.
F-21
<PAGE> 71
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
STRATASYS, INC.
BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,792,249 $ 4,726,056
Marketable securities 6,409,550 6,309,048
Accounts receivable, less allowance for doubtful
accounts of $130,000 in 1996 and 1995 4,856,510 2,769,010
Inventories 2,240,368 907,319
Prepaid expenses 203,524 119,423
------------ ------------
Total current assets 17,502,201 14,830,856
------------ ------------
MACHINERY AND EQUIPMENT, less
accumulated depreciation 1,411,042 1,112,328
------------ ------------
OTHER ASSETS
Deposits 52,124 41,124
Intangible assets 4,272,840 3,910,960
------------ ------------
4,324,964 3,952,084
------------ ------------
$ 23,238,207 $ 19,895,268
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Obligations under capitalized leases, current portion $ 145,493 $ 157,449
Accounts payable and other current liabilities 2,240,846 1,661,517
Unearned maintenance revenue 649,684 371,570
------------ ------------
Total current liabilities 3,036,023 2,190,536
------------ ------------
OBLIGATIONS UNDER CAPITALIZED LEASES, less current portion 112,123 182,520
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, Series A, voting, $.01 par value,
authorized, issued and outstanding 264,000 shares 2,640
Common Stock, $.01 par value, authorized 15,000,000
shares, issued and outstanding 5,288,424 shares
in 1996 and 4,233,876 shares in 1995 52,884 42,339
Capital in excess of par value 25,947,474 22,024,604
Accumulated deficit (3,964,297) (4,547,371)
Notes due on common stock purchases (1,946,000)
------------ ------------
Total Stockholders' Equity 20,090,061 17,522,212
------------ ------------
$ 23,238,207 $ 19,895,268
============ ============
See notes to financial statements.
</TABLE>
F-22
<PAGE> 72
<TABLE>
<CAPTION>
STRATASYS, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1996 1995 1996 1995
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 5,316,879 $ 2,128,003 $ 8,069,344 $ 3,819,099
COST OF GOODS SOLD 1,870,301 824,283 2,778,704 1,448,896
----------- ----------- ----------- -----------
GROSS PROFIT 3,446,578 1,303,720 5,290,640 2,370,203
COSTS AND EXPENSES
Research and development 843,246 513,161 1,436,267 951,767
Selling, general and administrative 2,141,540 868,030 3,517,991 1,653,609
----------- ----------- ----------- -----------
2,984,786 1,381,191 4,954,258 2,605,376
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 461,792 (77,471) 336,382 (235,173)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 119,888 43,163 265,384 93,383
Interest expense (8,769) (24,999) (18,692) (31,095)
----------- ----------- ----------- -----------
111,119 18,164 246,692 62,288
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 572,911 $ (59,307) $ 583,074 $ (172,885)
=========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
Primary $ 0.10 $ (0.02) $ 0.11 $ (0.05)
=========== =========== =========== ===========
Fully diluted $ 0.10 $ (0.02) $ 0.10 $ (0.05)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Primary 5,669,015 3,393,534 5,495,771 3,382,434
=========== =========== =========== ===========
Fully diluted 5,725,264 3,393,534 5,659,117 3,382,434
=========== =========== =========== ===========
See notes to financial statements.
</TABLE>
F-23
<PAGE> 73
<TABLE>
<CAPTION>
STRATASYS, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 583,074 $ (172,885)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 181,358 99,043
Amortization of intangibles and other assets 232,129 96,635
Bad debts 32,100
Increase (decrease) in cash attributes to
changes in assets and liabilities
Accounts receivable (2,087,500) (569,570)
Inventory (1,333,049) (118,849)
Prepaid expenses (84,101) (21,510)
Accounts payable and other current liabilities 579,329 61,447
Advance deposits from customers 500
Unearned maintenance revenue 278,114 73,757
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,650,646) (519,332)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of marketable securities (100,502)
Proceeds from the sale of machinery and equipment 40,775
Acquisition of machinery and equipment (480,072) (363,363)
Payments of deposits, net (11,000) (14,518)
Payments for intangible assets (594,009) (580,075)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,185,583) (917,181)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of obligations under capitalized leases (82,353) (82,817)
Proceeds from the sale of common stock 1,984,775 522,666
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,902,422 439,849
----------- -----------
NET DECREASE IN CASH (933,807) (996,664)
CASH AND CASH EQUIVALENTS, beginning of period 4,726,056 4,635,209
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 3,792,249 $ 3,638,545
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash paid during the period for interest $ 18,692 $ 31,095
=========== ===========
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING
AND FINANCING ACTIVITIES
During the six months ended June 30, 1996, the Company
issued common stock in exchange for note receivables $ 1,946,000 $ --
=========== ===========
During the six months ended June 30, 1996, the Company
issued common stock in exchange for preferred stock outstanding $ 3,794 $ --
=========== ===========
During the six months ended June 30, 1995, the
Company ender into capital lease agreements
for the acquisition of machinery and equipment $ -- $ 363,602
=========== ===========
During the six months ended June 30, 1995, the Company
issued common stock for the acquisition of intangible assets $ -- $ 2,500,000
=========== ===========
See notes to financial statements.
</TABLE>
F-24
<PAGE> 74
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 June
30, 1996 and the six months ended June 30, 1996 are not necessarily indicative
of the results to be expected for the full year. Certain financial information
and footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The reader is referred to the audited financial statements and notes
thereto for the year ended December 31, 1995, filed as part of the Company's
Annual Report on Form 10-KSB for such year.
Note 2 -- Common Stock
In January 1996, the Company's sole preferred stockholder converted all
264,000 issued and outstanding shares of the Company's preferred stock into
379,437 shares of its common stock.
In the six months ended June 30, 1996, the Company received net proceeds of
approximately $1,985,000 from the exercise of 198,450 warrants at prices ranging
from $5.80 to $18.00 per share and 76,661 options at prices ranging from $1.59
to $7.00 per share.
In May 1996, the Company issued 400,000 shares of the Company's common
stock upon exercise of warrants at prices ranging from $3.00 to $8.00 per share,
and in lieu of cash, the Company received notes for the exercise price of the
stock plus interest at a rate of prime plus 5%. The notes are collaterized by
50% of the shares issued. Subsequent to June 30, 1996, these notes have been
fully paid.
Note 3--- Facility
In March 1996, the Company took possession of 4,752 square feet of
additional office and production space as part of an amended lease agreement
with its present landlord. Future minimum lease payments will be increased
annually by approximately $39,000. Subsequent to June 30, 1996, the Company took
possession of 5,602 square feet of additional office and production space under
this amended lease. Future minimum lease payments will be increased annually by
approximately $41,000.
Note 4--Subsequent Event
Subsequent to June 30, 1996, the Company entered into a capital lease
agreement for the purchase of production equipment. The lease term is for 3
years with minimum lease payments of approximately $53,000 per year.
F-25
<PAGE> 75
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
OR INCORPORATED BY REFERENCE INTO THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. SUBJECT TO ANY DUTIES AND
OBLIGATIONS UNDER APPLICABLE SECURITIES LAWS TO UPDATE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN, NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Market for Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . 14
Management's Discussions and Analysis . . . . . . . . . . . . . . . . . . . . 15
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Directors, Executive Officers, Promoters and Control Persons . . . . . . . 34
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Principal and Selling Securityholders . . . . . . . . . . . . . . . . . . . . 40
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . 47
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Amendments to Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
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404,900 Shares
STRATASYS, INC.
Common Stock
PROSPECTUS
OCTOBER 15, 1996
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