<PAGE> 1
As filed with the Securities and Exchange Commission on April , 1997.
Registration No. 33-99108
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
Registration Statement
Under the
Securities Act of 1933
STRATASYS, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
Delaware 7372 363658792
- ---------------------- ------------------------- ---------------------
(State or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Identification
Organization) Classification Number)
Code Number)
</TABLE>
14950 Martin Drive
Eden Prairie, Minnesota 55344-2020
(612) 937-3000
(Address and Telephone Number of Registrant's Principal Executive
Offices and Principal Place of Business)
S. SCOTT CRUMP
PRESIDENT
STRATASYS, INC.
14950 Martin Drive
Eden Prairie, Minnesota 55344-2020
(612) 937-3000
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Jack Becker, Esq.
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158
Tel: (212) 687-3860
Fax: (212) 949-7052
Approximate Date of Proposed Sale to Public: As soon as practicable after
the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /____/
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933, as amended, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE> 2
PROSPECTUS
STRATASYS, INC.
250,897 Shares of Common Stock
This Prospectus pertains to up to 250,897 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) 60,420 currently outstanding shares of Common Stock held by certain of the
Selling Securityholders, and (ii) up to 190,477 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) 28,743 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) 4,312 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) 29,445 Shares are issuable upon the
exercise of options to purchase 29,445 shares of Common Stock granted in July
1995 to Salvani Investments, Inc., as compensation for investment consulting
services; and (d) 188,397 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 April 30, 1997.
<PAGE> 3
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,
-2-
<PAGE> 4
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 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
-3-
<PAGE> 5
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 is in the three dimensional ("3D") imaging business, which is
referred to as "rapid prototyping." The Company develops, manufactures and
markets a family of rapid prototyping devices that enable engineers and
designers to create physical models, tooling and prototypes out of plastic and
other materials directly from a computer aided design ("CAD") workstation. In
many industries, the models and prototypes required in product development are
produced laboriously by hand-sculpting or machining, a traditional process that
can take days or weeks. The Company's computerized modeling systems use its
proprietary technology to make models and prototypes more directly from a
designer's three-dimensional CAD in a matter of hours.
The Company believes that its patented fused deposition modeling
("FDM(R)") technology and new Genisys(R) 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(R) is a 3D desktop printer which uses
rapid prototyping technology developed by International Business Machines
Corporation ("IBM") that the Company purchased in 1995. It
-4-
<PAGE> 6
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 can produce functional prototypes at three times the speed of its
predecessor, the FDM(R) 1600 Benchtop, and can accommodate a variety of
engineering modeling materials. The third new product, the FDM(R) 8000, is a
rapid prototyping device, which incorporates Quickslice(R) software and the
filament extrusion method of the Company's FDM(R) products. It is capable of
building prototypes up to 24 inches in size with through-put comparable to the
recently announced FDM(R) 2000. The FDM(R) 8000 builds prototype parts using AGS
plastics. Distribution of the FDM(R) 1650 Benchtop and the Genisys(R) machine
began in March and June 1996, respectively, while shipment of the FDM(R) 8000 is
expected to begin in the second quarter of 1997.
The Company announced the FDM(R) 2000 in March 1997. It is an enhanced
version of the FDM(R) 1650, but features a 30% to 40% throughput improvement
over the FDM(R) 1650. Upgraded hardware and software accounts for the improved
performance features. The Company began shipping the FDM(R) 2000 in the first
quarter of 1997.
The process involved in the development of a three-dimensional model
using the Company's Benchtop systems begins with the creation of a conceptual
geometric model on a CAD workstation. The model is then imported into the
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(R) modeling process is similar. Genisys(R) uses AutoGen(R)
software to slice the conceptual model created on a CAD workstation into
horizontal layers that are downloaded into Genisys(R). Genisys(R) then uses
wafers of polyester modeling material, rather than spools of filament, to feed
the extrusion head. The extrusion head heats these wafers and, using a precision
hydraulic 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(R) 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 tough polyamide plastic
polymer that is similar to nylon, an investment casting wax, the hard polymer
material ABS (named for its three initial monomers, acrylonitrile, butadine, and
styrene), which is used commercially to make products such as
-5-
<PAGE> 7
telephones, and a medical grade ABS (MABS), for medical applications, and a
release material. Each material has specific characteristics that make it
appropriate for various applications. The ability to use different materials
allows the user to match the material to the end use application of the
prototype, whether it is a pattern for tooling or a concept model.
Genisys(R) uses only one type of modeling material, a plastic polymer,
which is manufactured in the form of wafers. A total of 50 wafers are held in a
cassette, which allows the wafers to be fed into the machine and rapidly
extruded in layers.
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 .......................... 250,897 (1)
Shares of Common Stock Outstanding:
before the Offering .............................. 5,670,698(2)
after the Offering................................ 5,921,595(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.
(1) Includes (i) an aggregate of 60,420 shares of Common Stock currently
outstanding and (ii) 190,477 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 April 21, 1997.
(3) Assumes the exercise of all options and warrants covered by this
Prospectus.
-6-
<PAGE> 8
<TABLE>
<S> <C>
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 $3,084,775 if all options and warrants
covered by this Prospectus were exercised.
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
</TABLE>
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>
Year ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales $22,919,818 $10,275,186 $3,790,828
Cost of Sales 7,888,516 3,906,841 1,612,121
Gross Profit 15,031,302 6,368,345 2,178,707
Expenses 12,859,558 6,227,267 3,279,403
Income (Loss) from Operations 2,171,744 141,078 (1,100,696)
Net Income (Loss) 3,503,024 371,024 (1,133,769)
Net Income (Loss) Per Share 0.62 0.09 (0.69)
</TABLE>
-7-
<PAGE> 9
BALANCE SHEET DATA:
<TABLE>
<S> <C> <C> <C>
Total Assets $31,462,719 $19,895,268 $6,808,030
Total Liabilities 4,891,014 2,373,056 984,922
Working Capital 20,192,107 12,640,320 5,091,295
Stockholders' Equity 26,405,728 17,522,212 5,823,908
</TABLE>
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, three new
products, the Genisys(R), the FDM(R) 1650 Benchtop and the FDM(R) 8000,
introduced in March 1996, and the FDM(R)2000, introduced in 1997. 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 operating
profits of $2,171,744 and $141,078 for its fiscal years ended December 31, 1996
and 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 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."
-8-
<PAGE> 10
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.
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(R) 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(R) 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 December 31, 1996, the Company incurred net losses of approximately
$1,044,000. Even though the Company earned a profit for the years ended December
31, 1996, and December 31, 1995 and as of December 31, 1996 had cash reserves of
approximately $10,500,000, 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,
-9-
<PAGE> 11
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) 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(R) 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
that 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
the FDM(R) 2000, the FDM(R) 8000 and Genisys(R), which uses a different
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
-10-
<PAGE> 12
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 that use alternative technologies. Some of these companies have
significantly greater financial, product development, manufacturing and
marketing 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
-11-
<PAGE> 13
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 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 20.21% 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 April 21,
1997, 2,726,533 shares of Common Stock have been sold to the public by the
Company pursuant to registration statements filed with the Securities and
Exchange Commission, and an additional 900,836 shares of Common Stock have been
or may be sold publicly by unaffiliated stockholders under Rule 144 promulgated
under the Securities Act. An additional 250,897 shares of Common Stock may be
sold publicly pursuant to the registration statement of which this Prospectus is
a part. 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 and an increase in the number of shares
that may be issued under the Company's 1994-2 Stock Plan from 500,000 to
1,000,000 has been approved. The Company intends to file a Registration
Statement on Form S-8 to register the sale of those 500,000 additional shares.
As of April 21, 1997, options to purchase an aggregate of 377,816 shares of
Common Stock have been exercised and sold under the S-8 Registration Statement
to holders of options and have been or may be resold without restriction.
Options to purchase an additional 807,472 shares of Common Stock have been
granted and become exercisable at various times through 2002 and may
subsequently be resold without restriction.
In addition to the options and warrants described above, the Company has
issued warrants to purchase 82,355 shares of Common Stock that are presently
exercisable, 25,000 of which may be exercised until October 31, 1998, 39,533 of
which may be exercised until November 3, 2000, 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
-12-
<PAGE> 14
piggyback registration rights. The warrants to purchase an aggregate of 18,000
shares have piggyback registration rights.
There are also 1,665,513 shares of Common Stock issued and outstanding
that may be sold pursuant to Rule 144 under the Securities Act by officers and
directors of the Company and one holder of more than 5% of the Company's issued
and outstanding Common Stock. The holder of 500,000 of the shares that may
presently be sold under Rule 144 also has presently exercisable piggyback
registration rights 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 presently outstanding warrants and options are
sold to the public, the number of shares that have been or may be sold publicly
will increase from approximately 5,005,185 shares to approximately 6,795,023
shares, or approximately 59% within the next five 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 $3,084,775 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
-13-
<PAGE> 15
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.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 1996 and as adjusted to give effect to the sale of 153,389 shares of
Common Stock sold from January 1, 1997 through April 21, 1997, pursuant to the
exercise of employee stock options and warrants to purchase Common Stock. 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>
December 31, 1996
--------------------------------------
Actual As Adjusted
------------ -----------
<S> <C> <C>
Obligations under capitalized leases, less current portion $ 186,415 $ 186,415
Stockholders' Equity
Common Stock, $.01 par value, 15,000,000 shares
authorized, 5,517,309 shares issued and outstanding
(actual) and 5,670,698 shares issued and outstanding
(as adjusted) 55,173 56,707
------------ -----------
Capital in excess of par value 27,394,902 28,276,972
------------ -----------
Accumulated deficit (1,044,347) (1,044,347)
------------ -----------
Total Stockholders' Equity 26,405,728 27,289,332
============ ===========
Total Capitalization 26,592,143 27,475,747
============ ===========
</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 from January 1, 1995, through December 31, 1996.
-14-
<PAGE> 16
<TABLE>
<CAPTION>
Bid Prices Sale Prices
---------- -----------
NASDAQ PSE
---------- -----------
<S> <C> <C> <C> <C>
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 - December 31, 1996 $ 23.00 $14.125 * *
</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 April 21, 1997, the closing bid price per share of Common Stock was
$19.25 on NASDAQ, there were no sales of Common Stock on the PSE, and the
Company had approximately 180 holders of record of its Common Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this
Prospectus.
GENERAL
The Company achieved record revenues for the year ended December 31,
1996. In March 1996, the Company replaced its existing Benchtop system, the
FDM(R) 1600 that was responsible
-15-
<PAGE> 17
for much of the Company's 1995 growth, with the FDM(R) 1650 that incorporated
significant engineering and software improvements and the Company began to ship
its Genisys(R) System. Efforts initiated in 1995 that improved the performance
and reliability of the Company's Benchtop system resulted in sharply higher
unit and revenue growth in 1995. In 1996, modeling material revenues continued
to grow dramatically as the Company's customer base of installed machines
increased. Both of those developments contributed to revenue growth in 1996.
The Company expended considerable resources throughout 1995 and 1996 to
enhance and manufacture a desktop rapid prototyping machine that incorporated
the technology acquired from IBM in January 1995. This product, introduced in
March 1996 was named the Genisys(R) 3D Printer. Genisys(R) is a push-button
desktop printer marketed as a design tool for quick concept models used early
in the product design cycle. Shipments of the Genisys(R) system began in the
second quarter of 1996 and continued throughout the year. The Company
established a reseller network to sell the Genisys system, and a significant
percentage of the 1996 Genisys(R) revenue was derived from discounted sales of
this unit into the reseller network. The Company believes that significant
future revenues will be derived from this product as non-discounted systems are
sold to end-users. The company also introduced the FDM(R) 8000 in March 1996,
and is now targeting commercial shipments to commence in the second quarter of
1997. Management believes that the additions to its product lines, coupled with
software enhancements and new modeling materials, 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.
Dating back to 1992, the Company has experienced five consecutive years
of record revenues. The Company believes that its technology offers distinct
advantages over its competitors, and that its new products listed above will
contribute to the Company's continued revenue growth into 1997, although it can
give no assurance that the historical revenue growth experienced by the Company
will be sustainable into the future.
Management believes that the trend 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
several competitors who have announced low-priced rapid prototyping systems
that appear to compete with the Company's Benchtop and Genisys(R) systems for
the lower-priced market. The Company can give no assurances that other rapid
prototyping competitors will not compete for this market, to the detriment of
future revenue growth. The Company also believes that a market trend in
prototype media appears to be toward the use of engineering modeling materials
like ABS, which is deliverable by the Company's FDM process. Although the
Company is not aware of other rapid prototyping vendors that offer ABS modeling
capabilities, there can be no assurances that other competitors will not develop
this capability.
-16-
<PAGE> 18
The Company was profitable in every quarter in 1996. The fourth quarter
marked the sixth consecutive quarter that the Company reported profits. The
Company has reported full-year profits for the second consecutive year. However,
due to higher infrastructure and personnel expenses and increased R&D expenses,
some of which are related to the Stratasys FDM(R) 8000, the Company believes
that the first quarter of 1997 will result in a loss, to be followed by
profitable quarters for the remainder of 1997. The first quarter historically
has been the Company's weakest, usually accounting for 15% or less of annual
revenue.
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
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 were $22,919,818 compared
with sales of $10,275,186 recorded for the year ended December 31, 1995. This
represents an increase of $12,644,632 or 123.1%. This increase was due to the
continued unit sales growth of the Company's FDM(R) 1650 Benchtop system that
replaced the FDM(R) 1600 Benchtop system in the first quarter of 1996. Like the
1600, the 1650 features ABS and multiple material modeling coupled with software
and hardware performance enhancements. Revenue was also impacted by the
successful introduction of the Genisys(R) system in the second quarter of 1996.
Unit sales of the Company's rapid prototyping products increased by
approximately 183% for the year ended December 31, 1996, as compared with the
comparable 1995 period. Maintenance and materials revenue were also up
significantly in the 1966 period as compared with the 1995 period. Both
maintenance and materials revenues were enhanced by the larger installed base
that the Company has established, the Genisys(R) introduction, and the customer
satisfaction with the ABS and other materials selection.
Gross margins improved to $15,031,302, or 65.6% of sales, in the year
ended December 31, 1996 compared with $6,368,345, or 62.0% of sales, in the year
ended December 31, 1995, an improvement of $8,662,957, or 136%. Gross margins
benefitted from the higher average selling price of the FDM(R) 1650 system in
1996, and by reductions to the FDM(R) 1650 material cost of goods sold achieved
throughout 1996. These material cost savings were achieved through purchasing
efficiencies and engineering design changes. Gross margins were also favorably
impacted by the increase of materials revenues, with considerably higher margins
than either FDM(R) or Genisys(R) unit sales. The direct labor and manufacturing
burden component of cost of goods sold declined as well, but constitute less
than 10% of total cost of goods sold. Gross margins were negatively impacted by
the sales of the Genisys(R) system, many of which were sold at 40% discounts
intothe Company's reseller network as demonstration units. With the majority of
the domestic ressellers now possessing demonstration units, the
-17-
<PAGE> 19
future average selling price of the Genisys product should increase
significantly, positively affecting gross margins. In addition, the Company
believes that there are opportunities to improve on the Company's gross margins
in the Genisys(R) product line through additional engineering design changes.
These reductions to the cost of sales should occur throughout 1997.
Selling, general and administrative ("SG&A") expenses increased to
$9,485,519 for the year ended December 31, 1996, from $4,231,571 for the year
ended December 31, 1995. This represents an increase of $5,253,948 or 124.2%,
roughly in line with the 123.1% increase in sales in the comparable period. SG&A
amounted to 41.4% of 1996 sales versus 41.2% of 1995 sales. Salaries and wages,
related payroll costs, commissions, travel, and promotional expenses accounted
for a significant amount of SG&A expenses for both periods. SG&A in 1996
reflected significantly higher amortization expense than in 1995, following the
introduction of the Genisys(R) system. The 1996 period also included higher bad
debt and warranty expense, as the Company increased its allowance for bad debt
as well as its warranty reserve, in light of the new product introduction
(Genisys(R)) as well as the additional sales resulting in a $11,077,155 gross
accounts receivable balance at December 31, 1996. The 1996 SG&A expenses also
include infrastructure and expansion expenses not encountered in the 1995
period, including additional rent expenses as the Company expanded several
times throughout 1996, computer training and implementation expenses, and
general office expenses. The Company believes that SG&A expenses as a
percentage of sales should decline in 1997, especially after the first quarter
of 1997 as revenues increase. The Company-wide personnel headcount, including
subcontractors, increased by approximately 65% in the year ended December 31,
1996 as compared with the 1995 period, a favorable increase in light of the
123.1% revenue growth. While the Company plans to control its headcount
additions in 1997, some increase to headcount in the first quarter of 1997
appears unavoidable if the Company plans to meet its revenue goals.
Research and Development ("R&D") expenses increased to $3,374,039 for the
year ended December 31, 1996, from $1,995,696 incurred in the year ended
December 31, 1995. The increase in the 1996 period over the 1995 period amounted
to $1,378,342, or 69.1%. The increase to R&D expenses compare favorably to the
123.1% increase in sales revenues for the same 1996 period. As a percentage of
sales, R&D expenses amounted to 14.7% of 1996 sales compared with 19.4% of 1995
sales. Salaries, wages, related payroll expenses, contract labor, and hardware
materials accounted for most of the increase to R&D expenses. In 1996, the
Company capitalized $748,268 of software costs in accordance with FASB 86,
versus $1,138,499 in the comparable 1995 period. R&D incurred certain
infrastructure expenses not encountered in 1995, especially additional rent and
facility expansion expenses. On anticipated higher 1997 revenues, the Company
should be able to continue a downward trend in R&D expenses as a percentage of
sales while maintaining a level of R&D consistent with the Company's longer
range plans for new product introductions and enhancements, which
-18-
<PAGE> 20
include the FDM(R) 8000, new modeling materials, new software enhancements, and
improved price/performance capabilities from its existing product offerings.
The Company's operating income for the year ended December 31, 1996
increased to $2,171,744 from $141,078 for the year ended December 31, 1995. This
represents an increase of $2,030,666, or 1,439.4%. Net interest income also
increased in the 1996 period, amounting to $546,280 for the year ended December
31, 1996, from $252,946 in the comparable 1995 period. The Company benefitted
from a net income tax credit of $785,000 in the year ended December 31, 1996 as
compared with income tax expense of $23,000 in the year ended December 31, 1995
as a result of a decrease in the valuation allowance for deferred tax assets.
Net income for the year ended December 31, 1996 amounted to $3,503,024, or 15.3%
of sales, compared with $371,024, or 3.6% of sales for the comparable 1995
period. The improvement in net income for 1996 over 1995 was $3,132,000, or
844.2%. The earnings per common share for the year ended December 31, 1996
amounted to $.62 on a fully diluted basis determined by 5,647,160 weighted
average number of common and common equivalent shares outstanding. For the year
ended December 31, 1995 the Company reported earnings per common share of $.09
on a fully diluted basis determined by 4,046,123 weighted average number of
common and common equivalent shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities during 1996 used cash of $3,409,541, primarily
reflecting increases in accounts receivable of $8,178,145 and inventory of
$1,699,176, resulting from the increased volume of business. This was partially
offset by increases in accounts payable and accrued expenses of $1,979,543 and
cash generated from the increase in unearned maintenance revenues of $710,474.
Net cash of $405,807 was used in 1995 by operating activities, principally as a
result of increased accounts receivable and inventories due to increased
revenues from product sales. The Company used $2,253,450 of cash in its 1996
investing activities, including $1,432,387 used for the acquisition of property
and equipment, and $822,924 for payments for intangible assets, of which
$748,268 was for the capitalization of software costs in accordance with FASB
86. In 1995, the Company used $8,159,643 of cash in its investing activities,
including $683,389 for the acquisition of property and equipment, $1,215,212 for
the payments for intangible assets, of which $1,138,499 was for the
capitalization of software costs, and $12,639,993 for the acquisition of
marketable securities, $6,349,743 of which were sold in the same period. In
1996, the Company's financing activities provided $5,171,903 of cash, $5,350,492
of which was generated through the exercise of 240,353 options at prices ranging
from $1.59 to $6.00, and 661,643 warrants at prices ranging from $3.00 to
$18.00. In 1995, financing activities provided $8,656,297, $8,827,280 of which
was generated from the sale of the Company's common stock in private placements
or through the exercise of options and warrants. The net decrease in cash for
the twelve months ended December 31, 1996 amounted to $761,088 as compared with
a net increase of $900,847 for the comparable 1995 period. The
-19-
<PAGE> 21
Company's ending cash and cash equivalents balances of December 31, 1996 and
1995 were $3,964,968 and $4,726,056, respectively.
At December 31, 1996, the Company's cash, cash equivalents and
marketable securities balances totaled $10,537,875. These assets will be used by
the Company for working capital purposes, 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 balances, 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.
As of December 31, 1996, the Company had gross accounts receivable of
$11,077,155, less an allowance of $470,000 for returns and doubtful accounts.
While the Company has historically never recorded a bad debt, an increase to its
allowance for returns and bad debt was deemed appropriate because approximately
45% of its sales were generated in the fourth quarter, extended payment terms
were granted to select customers and resellers, and certain international
distributors had substantial balances. While the Company can give no assurances,
it believes that most if not all the accounts receivable balances will
ultimately be collected.
The Company's total current assets amounted to $25,083,121 at December
31, 1996, 84.3% of which comprised cash, cash equivalents, marketable
securities, and accounts receivable. Total current liabilities amounted to
$4,891,014, $1,082,044 of which was for unearned maintenance revenues. The
Company's debt is minimal, primarily consisting of payments due under capital
leases. The Company estimates that it will spend approximately $1,900,000 in
1997 on expansion of its production capacity, facilities expansion, production
and R&D equipment, and computers and integrated software. As of December 31,
1996, material commitments for facilities expansion, computer installation and
integration, and R&D development amounted to approximately $200,000, $250,000,
and $200,000, respectively.
Shipments of the FDM(R) 8000 were delayed from the fourth quarter of 1996
to the second quarter of 1997. Ongoing R&D and pre-production expenses
associated with the FDM 8000 were incurred by the Company in the fourth quarter
of 1996, and the Company anticipates above trend-line expenses for this activity
to continue through the second quarter of 1997. The Company believes that this
will have a negative impact on the Company's first quarter 1997 results. In late
1996, the Company entered into an agreement to lease an additional 59,400 square
feet of combined office/warehouse space for an annual base rent of approximately
$252,000. The Company plans to sublease approximately 40% of this space until
it is needed for production capacity expansion; some of this space has
currently been sublet.
The Company believes that the rapid prototyping industry revenue is
growing at approximately 50% per year. It believes that there is a trend toward
lower-priced rapid prototyping systems capable of producing functional
prototypes, and that a sizable market
-20-
<PAGE> 22
exists for concept or visualization 3D printers priced around $55,000. This
pricing trend should lead to growth in the more traditional functional
prototyping marketplace as companies continue to address in-house rapid
prototyping needs. Certain market segments in the industry have not demonstrated
pricing sensitivity. These segments are more interested in modeling envelope
size, modeling material variety, throughout, and part quality, which should
allow growth to continue for higher priced rapid prototyping systems addressing
these needs. The Company believes that its 1996 unit growth rate led the rapid
prototyping industry, although it can give no assurance that this growth rate or
market acceptance of its products will continue into the future.
-21-
<PAGE> 23
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(R), the
FDM(R)-1650, and the FDM(R) 8000, each of which is oriented to separate stages
of a customer's product development cycle. Shipments of the FDM(R) 1650 and
Genisys(R) began in March and June 1996, respectively, and shipments of the
FDM(R) 8000 are expected to begin in the second quarter of 1997.
In March 1997, the Company announced the FDM(R) 2000, an enhanced version
of the Company's FDM(R) 1650.
BUSINESS OF THE COMPANY
The Company is in the three dimensional ("3D") imaging business, which is
referred to as "rapid prototyping". The Company develops, manufactures and
markets a family of rapid prototyping devices that enable engineers and
designers to create physical models, tooling and prototypes out of plastic and
other materials directly from a computer aided design ("CAD") workstation. In
many industries, the models and prototypes required in product development are
produced laboriously by hand-sculpting or machining, a traditional process that
can take days or weeks. The Company's computerized modeling systems use its
proprietary technology to make models and prototypes more directly from a
designer's three-dimensional CAD in a matter of hours.
The Company believes that its patented fused deposition modeling
("FDM(R)") technology and new Genisys(R) 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
-22-
<PAGE> 24
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 process involved in the development of a three-dimensional model
using the Company's Benchtop systems begins with the creation of a conceptual
geometric model on a CAD workstation. The model is then imported into the
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(R) modeling process is similar. Genisys(R) uses AutoGen(R)
software to slice the conceptual model created on a CAD workstation into
horizontal layers that are downloaded into Genisys(R). Genisys(R) then uses
wafers of polyester modeling material, rather than spools of filament, to feed
the extrusion head. The extrusion head heats these wafers and, using a precision
hydraulic 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(R) 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(R); 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(R) 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
-23-
<PAGE> 25
at his desk directly from a workstation in a simple push-button fashion. The
FDM(R)-1650 Benchtop can produce functional prototypes at three times the speed
of its predecessor, the FDM(R)-1600 Benchtop, and can accommodate a variety of
engineering modeling materials. The third new product, the FDM(R)-8000, is a
rapid prototyping device, which incorporates Quickslice(R) software and the
filament extrusion method of the Company's FDM(R) products. It is capable of
building prototypes up to 24 inches in size with through-put comparable to the
recently announced FDM(R) 2000. The FDM(R) 8000 builds prototype parts using ABS
plastics. Distribution of the FDM(R)-1650 Benchtop and the Genisys(R) began in
March and June 1996, respectively, while shipment of the FDM(R) 8000 is expected
to begin in the second quarter of 1997.
The Company announced the FDM(R) 2000 in March 1997. It is an enhanced
version of the FDM(R) 1650, but features a 30% to 40% throughput improvement
over the FDM(R) 1650. Upgraded hardware and software accounts for the improved
performance features. The Company began shipping the FDM(R) 2000 in the first
quarter of 1997.
The four 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(R) and reach $200,000 for the FDM(R) 8000. The cost of the
FDM(R)-1650 Benchtop is approximately $120,000. The price of the FDM(R) 2000
will be approximately $140,000. 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 that 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 or the FDM(R) Benchtop systems. 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. Other advantages of the spool-based system over a UV polymer system
are 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, and that it allows the customer to use the system in an office
environment.
Currently, the Company has five modeling materials commercially available
for model generation using its FDM(R) technology: 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, acrylonitrile, butadine, and
styrene), which is used commercially to make products such as telephones, and a
medical grade ABS (MABS), used for medical applications and a release material.
Each material has specific characteristics that make it appropriate for various
applications.
-24-
<PAGE> 26
The ability to use different materials allows the user to match the material to
the end use application of the prototype, whether it is a pattern for tooling or
a concept model.
Genisys(R) uses only one type of modeling material, a plastic polymer,
which is manufactured in the form of wafers. A total of 50 wafers are held in a
cassette, which allows the wafers to be fed into the machine and rapidly
extruded in layers. Additional cassettes are easily loaded into the system. Each
cassette contains a memory chip that instructs the system as to the parameters
and melt temperature of the material lot, which optimizes the automatic build
process of the Genisys(R) 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(R). 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(R) 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
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(R). SupportWorks(R) 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 originally
sold for approximately $6,000. The Company has now combined QuickSlice(R) and
-25-
<PAGE> 27
SupportWorks(R) into a proprietary $12,000 copyrighted package, which is sold
under the name QuickSlice(R). The current version is QuickSlice(R) 4.0.
In 1996, the Company introduced AutoGen(R), software specifically
designed for Genisys(R). AutoGen(R) orients and analyzes the user's CAD, then
divides it into "slices." AutoGen(R) then drives the rapid prototyping hardware.
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 and other educational institutions.
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(R) 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,
-26-
<PAGE> 28
Chrysler Corporation, Square D Company, Whirlpool Corporation, Snap On Tools,
Biomet, Inc., Motorola, Eastman Kodak Company, Marubeni, Wright Patterson Air
Force Base, the Naval Air Warfare Center, Tatung, Westinghouse Electric
Corporation 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.
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 , videos and a web site (www.Stratasys.com). 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. In 1997, the
Company organized its domestic FDM(R) sales force into three regions.
Salespersons and management reside in the regions they service. In addition,
Genisys(R) resellers have been assigned to managers within this regional
framework. The Company markets internationally through a network of distributors
and sales representatives. During the years ended December 31, 1995 and 1996,
export sales amounted to approximately $5,080,000 and $8,865,000, respectively.
No customer accounted for more than 10% of sales in 1995 or 1996.
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. Annual service contracts for
the Company's FDM(R) systems are priced at $10,000, while annual service
contracts for the Genisys(R) system are priced at $5,500.
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, FDM(R) 8000 and Genisys(R) systems from various outside vendors,
subcontractors and other sources and
-27-
<PAGE> 29
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, FDM(R)
2000 and FDM(R) 8000 Benchtop systems 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 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(R) 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, 1995 and 1996, the Company's
research and development expenses were approximately $1,996,000 and $3,374,000,
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,
-28-
<PAGE> 30
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, now
called the Bass(TM) Support System. 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(R) 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.
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", "FDM",
"Genisys" and Autogen." 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.
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(R)
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(R) 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, which can be used in an office
-29-
<PAGE> 31
environment. A smoothing or milling process is required between each deposited
layer to maintain accuracy in these processes. The Sanders machine is currently
capable of building small parts.
According to a March 1997 industry report by Wohlers Associates, Inc.,
in 1996 the Company shipped more rapid prototyping systems than any other rapid
prototyping vendor. Nevertheless, 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 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 April 21, 1997, the Company had 124 full-time employees and 25
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 facilities presently
occupy approximately 87,156 square feet in two adjacent buildings in Eden
Prairie, Minnesota, near Minneapolis. The company occupies a 27,756 square foot
facility under a lease that expires on July 31, 1999. In October 1996, the
Company leased an additional 59,400 square feet of office and production space
in a building adjacent to its original Eden Prairie premises under a lease
expiring in October 1999. Approximately 40% of the new premises will be sublet
until needed by the Company. The Minnesota facilities are used for machine
assembly and filament production, as well as sales, administration and
operations. The current monthly rent for the premises occupied by the Company
total approximately $35,797. The Company does not require a large space for
production, because it assembles its devices from sub-assemblies manufactured by
outside vendors.
-30-
<PAGE> 32
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 at all 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.
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 44 President, Chief Executive Officer, Treasurer, Chairman of
the Board, and Chief Financial Officer
Lisa H. Crump 44 Vice President and Secretary
Donald W. Moffatt 57 Chief Operating Officer
Lawrence E. Roscoe 48 Vice President, Software Development
Ralph E. Crump 74 Director
Clifford H. Schwieter 49 Director
</TABLE>
-31-
<PAGE> 33
<TABLE>
<S> <C> <C>
Arnold J. Wasserman 59 Director
Gregory L. Wilson 50 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 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.
1 Donald W. Moffatt 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.
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.
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 $200,000,000
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
-32-
<PAGE> 34
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 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 (a) during the fiscal years ended December 31,
1994, December 31, 1995, and
-33-
<PAGE> 35
December 31, 1996 to S. Scott Crump, its Chairman, President, Chief Executive
Officer, Treasurer and Chief Financial Officer and (b) during the fiscal year
ended December 31, 1996 to Donald W. Moffatt, its Chief Operating Officer, the
only executive officer who received compensation in excess of $100,000 during
the fiscal years December 31, 1994, 1995 and 1996.
-34-
<PAGE> 36
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------------------- ----------------------
Name and Other Securities
Principal Annual Underlying
Position Year Salary Bonus Compensation Options/SARs
--------- ---- ---------- -------- ------------ ----------------------
<S> <C> <C> <C> <C> <C>
S. Scott Crump 1996 $95,000(1) $3,923(2) 0 2,000
Chairman,
President, CEO,
Treasurer, and
CFO
1995 $86,654(1) $3,654(3) 0 0
1994 $67,721(4) $2,248 0 0
Donald W. 1996 $97,385(5) $2,769(6) $30,000(7) 23,000
Moffatt
Chief
Operating
Officer
</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 and for 1996.
(2) $2,923 of this bonus was earned in 1996 and paid in 1997.
(3) This bonus was earned in 1995 and paid in 1996.
(4) 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.
(5) Mr. Moffatt became Chief Operating Officer of the Company on February
19, 1996 and was paid at the rate of $120,000 per year from February to
October 1996. Mr. Moffatt was paid at the rate of $90,000 per year for
the months of November and December 1996.
(6) This bonus was earned in 1996 and paid in 1997.
(7) The Company issued Mr. Moffatt 2,000 shares of its Common Stock on July
2, 1996, as additional compensation.
-35-
<PAGE> 37
The table below includes the number of stock options granted to the
executive officers named in the Summary Compensation Table during the year
ended December 31, 1996 and exercise information.
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE
---- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
S. Scott Crump 2,000(1) .9% $16.50 3/25/2002
Donald W. Moffatt 23,000(1) 10.9% $16.50 3/25/2002
</TABLE>
(1) One-fifth of these options vests on each of the first through the
fifth anniversaries of the date of grant. Termination of employment
prior to vesting results in forfeiture of the options that have not
vested.
The table below includes information regarding the value realized on
option exercises and the market value of unexercised options held by the
executive officers named in the Summary Compensation Table during the year
ended December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY- END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FY-END(#) FY-END($)
ON EXER- VALUE EXERCISABLE/ EXERCISABLE/
NAME CISE (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
---- -------- --------- ------------- ----------------
<S> <C> <C> <C> <C>
S. Scott Crump -- -- 0/2,000 0/$6,750
Donald W. Moffatt -- -- 0/23,000 0/$77,625
</TABLE>
-36-
<PAGE> 38
(1) Based upon a closing price of $19.875 on the Nasdaq National Market on
December 31, 1996.
-37-
<PAGE> 39
Directors' Fees
Directors currently receive no cash compensation for serving on the
Board of Directors other than reimbursement of reasonable expenses incurred in
attending meetings. Three 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. One of such directors was granted options before the
Company's August 1994 stock split, and his options currently entitle him to
purchase 43,118 shares of Common Stock. "CERTAIN TRANSACTIONS--Directors'
Options" for a discussion of options granted to certain directors .
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. Mr. Crump received a bonus of $3,923
for 1996, of which $2,923 was earned in 1996 and paid in 1997.
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 been granted. As of April 21, 1997,
Options to purchase 67,411 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, 10,800 of which have terminated or expired and are again
available for grant. As of April 21,
-38-
<PAGE> 40
1997, options to purchase 134,684 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, an amendment to
Plan 3 to increase the number of shares authorized to 1,000,000 shares. Since
its adoption, through April 21, 1997, options to purchase an aggregate of
896,088 shares have been granted under Plan 3, and options to purchase 175,721
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 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.
-39-
<PAGE> 41
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 250,897 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
Nature of Beneficially Percent of Class(3)
------------------------
Beneficial Shares to Owned Before After
Name Ownership(1)(2) Be Sold(2) After Offering Offering Offering
---- -------------- --------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
OFFICERS, DIRECTORS AND 5% STOCKHOLDERS
International Business 500,000 -0- 500,000 8.82% 8.82%
Machines Corp.
Old Orchard Road
Armonk, NY 10504
S. Scott and 760,435 -0- 760,435 13.41% 13.41%
Lisa H. Crump (4)(5)
Donald W. Moffatt (4) 6,600 (6) -0- 6,600 * *
Ralph E. Crump 309,330 (7) -0- 309,330 5.46% 5.46%
28 Twisted Oak Circle
Trumbull, CT 06611
Arnold Wasserman 58,330 (8) -0- 58,330 1.02% 1.02%
1 Brookwood Drive
West Caldwell, NJ 07006
Clifford Schwieter 5,318 (9) -0- 5,318 * *
8065 Village Drive
Cincinnati, OH 45242
</TABLE>
-40-
<PAGE> 42
<TABLE>
<CAPTION>
Amount and Shares
Nature of Beneficially Percent of Class(3)
------------------------
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 25,000 (10) -0- 25,000 * *
1301 W. 400 North
Orem, UT 84057
All Directors and
executive officers as
a group (8 persons) 1,165,513 (11) 0 1,165,513 20.21%
20.21%
Selling Securityholders
Affida Bank 3,000 (12) 3,000 0 * 0
Andromeda Corporation
N.V. 20,000 (12) 20,000 0 * 0
Austin J. Baillon 3,593 (13) 3,593 0 * 0
Banco Di Napoli 5,000 (14) 5,000 0 * 0
Bank Austria 5,000 (14) 5,000 0 * 0
Banque Scandinave
en Suisse 12,000 (12) 12,000 0 * 0
Brookehill Equities,
Inc. (15) 1,667 (14) 1,667 0 * 0
Frank P. Brosens 6,000 (12) 6,000 0 * 0
Counselors Emerging
Growth Fund, Inc. 21,428 (12) 21,428 0 * 0
<CAPTION>
* 2 moved from here; text not shown
* 3 moved from here; text not shown
<S> <C> <C> <C> <C> <C>
Discretionary Trust 1,000 (14) 1,000 0 * 0
Diversified Investment
Fund, L.P. 1,600 (14) 1,600 0 * 0
David J. Doerge Trust 4,284 (12) 4,284 0 * 0
Gifford Fund 8,000 (12) 8,000 0 * 0
</TABLE>
-41-
<PAGE> 43
<TABLE>
<CAPTION>
** 2 Amount and Shares
Nature of Beneficially Percent of Class(3)
------------------------------
Beneficial Shares to Owned Before After
** 3 Name Ownership(1)(2) Be Sold(2) After Offering Offering Offering
--------------- --------------- ------------- -------------- --------
<S> <C> <C> <C> <C> <C>
Russell Jean Gray, Jr. 3,593 (13) 3,593 0 * 0
Dennis J. Hanish 2,874 (13) 2,874 0 * 0
719 (16) 719 0 * 0
Harvest Capital, L.P. 49,450 (14) 49,450 0 * 0
Thomas S. Hay 1,437 (13) 1,437 0 * 0
John B. Jasper 1,437 (13) 1,437 0 * 0
Robert D. Johnson and
Karen Johnson 1,437 (13) 1,437 0 * 0
Howard and Nancy Klein 1,428 (12) 1,428 0 * 0
Robert J. Korkowski 3,593 (13) 3,593 0 * 0
Liberty Travel, Inc. 8,000 (14) 8,000 0 * 0
Nathan A. Low (17) 152,000 2,000 (16) 150,000 2.65% 2.65%
Thomas C. Mullery 4,312 (13) 4,312 0 * 0
Joseph Novogratz 3,593 (13) 3,593 0 * 0
A. Markman Peters 2,000 (12) 2,000 0 * 0
Quasar International, C.V. 34,400 (14) 34,400 0 * 0
John Ryden 3,593 (13) 3,593 0 * 0
Salvani Investments,
Inc. (19) 29,445 (19) 29,445 0 * 0
Willard C. Shull, III 1,437 (13) 1,437 0 * 0
</TABLE>
-42-
<PAGE> 44
<TABLE>
<S> <C> <C> <C> <C> <C>
David A. Smith 1,437 (13) 1,437 0 * 0
</TABLE>
-43-
<PAGE> 45
<TABLE>
<CAPTION>
** 4 Amount and Shares
Nature of Beneficially Percent of Class(3)
---------------------------
Beneficial Shares to Owned Before After
** 5 Name Ownership(1)(2) Be Sold(2) After Offering Offering Offering
------ --------------- ------------ -------------- -------- --------
<S> <C> <C> <C> <C> <C>
Theodore Sylvan 400 (12) 400 0 * 0
21st Century Digital
Industries Fund, L.P. 1,000 (12) 1,000 0 * 0
Ming Fang Wang 740 (12) 740 0 * 0
-------
TOTAL 250,897
</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 5,670,698 shares of Common Stock issued and outstanding as of
April 21, 1997.
(4) The address of these persons is in care of the Company, 14950 Martin
Drive, Eden Prairie, Minnesota 55344.
(5) S. Scott Crump owns 380,014 shares individually, and Lisa H. Crump owns
379,621 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 154,665 shares held by Ralph Crump,
Scott Crump's father and Lisa Crump's father-in-law, and the 154,665
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.
(6) Includes 2,000 shares of Common Stock owned by Mr. Moffatt and 4,600
shares issuable upon current exercisable options. Excludes 20,400 shares
issuable pursuant to options granted to him, which become exercisable
through April 2002.
-44-
<PAGE> 46
(7) Includes 154,665 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; 380,014 shares
held by Mr. Crump's son, S. Scott Crump, and 379,621 shares held by Mr.
Crump's daughter-in-law, Lisa H. Crump.
(8) Includes 58,330 shares of Common Stock issuable upon the exercise of
options currently exercisable by Mr. Wasserman. Excludes 11,670 shares of
Common Stock issuable pursuant to options granted to him, which become
exercisable through November 30, 1997. See "CERTAIN
TRANSACTIONS-Consulting Agreements" and "Directors' Options".
(9) Includes 3,593 shares of Common Stock issuable upon the exercise of
options currently exercisable by Mr. Schwieter. Excludes 3,593 shares
issuable pursuant to options granted to him, which become exercisable
through August 1997. See "CERTAIN TRANSACTIONS-Consulting Agreements" and
"Directors' Options."
(10) Includes 25,000 shares of Common Stock issuable upon the exercise of
options currently exercisable by Mr. Wilson. Excludes 5,000 shares
issuable pursuant to options granted to him, which become exercisable
through November 30, 1997.
(11) Includes 500 shares owned by Lawrence Roscoe, Vice President, Software
Development, and 4,750 shares of Common Stock issuable upon the exercise
of employee stock options currently exercisable by Mr. Roscoe. Excludes
6,562 shares issuable pursuant to options granted to him, which become
exercisable through March 2002.
(12) Represents shares of Common Stock issued and/or shares of Common Stock
issuable upon the exercise of warrants issued to investors in the
November 3, 1995 private placement.
(13) Represents shares of Common Stock issued and/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.
(14) Represents shares issued and/or issuable upon the exercise of
warrants purchased pursuant to the Company's August 1995 private
placement.
(15) Brookehill Equities, Inc. was the placement agent for both the Company's
August 1995 and November 1995 private placements.
(16) 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.
(17) 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.
(18) Salvani Investments, Inc. is the Company's international financial and
investment consultant.
(19) Represents shares of Common Stock issuable upon the exercise of
options granted for services rendered.
CERTAIN TRANSACTIONS
-45-
<PAGE> 47
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 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.
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
-46-
<PAGE> 48
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.
-47-
<PAGE> 49
DIRECTORS' OPTIONS
In August 1994, the Company entered into a stock option agreement with
Clifford Schwieter. In consideration for his services as a director of the
Company, Mr. Schwieter received a non-qualified option to purchase 43,118
shares of Common Stock at an exercise price of $3.83 per share. Options to
purchase 3,593 shares became exercisable as of September 30, 1994, with an
additional 3,593 shares vesting on the last day of each calendar quarter
through June 30, 1997. The options expire on September 29, 1999 and all but
7,187 options have been exercised.
On December 15, 1994, the Company entered into a stock option agreement
with Arnold J. Wasserman. In consideration for his services as a director of
the Company, Mr. Wasserman received a non-qualified option to purchase 30,000
shares of Common Stock at an exercise price of $5.375. Options to purchase
2,500 shares became exercisable as of December 31, 1994, with an additional
2,500 vesting on the last day of each calendar quarter through September 30,
1997. The options expire on December 14, 1999, and no options have been
exercised.
On December 15, 1994, the Company entered into a stock option agreement
with Gregory L. Wilson. In consideration for his services as a director of the
Company, Mr. Wilson received a non-qualified option to purchase 30,000 shares
of Common Stock at an exercise price of $5.375. Options to purchase 2,500
shares became exercisable as of December 31, 1994, with an additional 2,500
vesting on the last day of each calendar quarter through September 30, 1997.
The options expire on December 14, 1999 and no options have been exercised.
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 5,670,698 shares were
outstanding as of April 21, 1997.
COMMON STOCK
As of April 21, 1997, there were approximately 180 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
-48-
<PAGE> 50
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 5,670,698 issued and outstanding shares of Common Stock,
as of April 21, 1997, approximately 1,820,829 shares are "restricted
securities" as such term is defined under Rule 144 under the Securities Act;
60,420 of those restricted securities may be sold under the registration
statement of which this Prospectus is a part; 1,665,513 of those restricted
securities may presently be sold under Rule 144, while the remaining 94,896
restricted securities are subject to legal and contractual restrictions on
sales that expire between May 26, 1997 and July 2, 1997. After those
restrictions expire, all 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 272,832 shares of Common
Stock, 190,477 of which are currently exercisable and may be sold pursuant to
the registration statement of which this Prospectus is a part. Warrants to
purchase 82,355 shares of Common Stock are currently exercisable, but the
shares issuable upon exercise are not included in that registration statement.
Warrants to purchase 64,355 of those shares of Common Stock 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 1,196,088 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 317,998 shares of Common Stock are exercisable;
options to purchase 377,816 such shares have been exercised, all of which have
been sold or are eligible for sale; and 500,274 such shares become exercisable
periodically through 2002. See "RISK FACTORS--Adverse Effect of Public Sales
of Additional Shares."
-49-
<PAGE> 51
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."
-51-
<PAGE> 52
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, Regulation M, which provisions may
limit the timing of purchases and sales of Common Stock by the Selling
Securityholders. In particular, Rule 102 under Regulation M would restrict
market makers that are also Selling Securityholders from making a market in
the Common Stock for up to five 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
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
-52-
<PAGE> 53
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,
1995 and 1996 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.
-53-
<PAGE> 54
STRATASYS, INC.
CONTENTS
================================================================================
INDEPENDENT AUDITORS' REPORT F - 2
FINANCIAL STATEMENTS
Balance Sheets F - 3
Statements of Income F - 4
Statements of Stockholders' Equity F - 5
Statements of Cash Flows F - 6 - 7
Notes to Financial Statements F - 8 - 21
F - 1
<PAGE> 55
INDEPENDENT AUDITORS' REPORT
Board of Directors
Stratasys, Inc.
We have audited the accompanying balance sheets of Stratasys, Inc. as of
December 31, 1996 and 1995 and the related statements of income, 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, 1996 and 1995, 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 14, 1997
F - 2
<PAGE> 56
STRATASYS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
=======================================================================================================
DECEMBER 31, 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,964,968 $ 4,726,056
Marketable securities 6,572,907 6,309,048
Accounts receivable, less allowance for returns and
doubtful accounts of $470,000 in 1996 and $130,000
in 1995 10,607,155 2,769,010
Inventories 2,648,990 907,319
Prepaid expenses 344,101 119,423
Deferred taxes 945,000
------------------------------
Total current assets 25,083,121 14,830,856
------------------------------
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization 2,184,165 1,112,328
------------------------------
OTHER ASSETS
Intangible assets, less accumulated amortization 4,119,857 3,910,960
Sundry 75,576 41,124
------------------------------
4,195,433 3,952,084
------------------------------
$31,462,719 $19,895,268
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Obligations under capital leases, current portion $ 186,415 $ 157,449
Accounts payable and other current liabilities 3,622,555 1,661,517
Unearned maintenance revenues 1,082,044 371,570
------------------------------
Total current liabilities 4,891,014 2,190,536
------------------------------
DEFERRED TAXES 71,000
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 94,977 182,520
------------------------------
165,977 182,520
------------------------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, Series A, $.01 par value, authorized
264,000 shares, issued and outstanding 264,000 shares in 1995 2,640
Common stock, $.01 par value, authorized 15,000,000 shares,
issued and outstanding 5,517,309 shares in 1996 and
4,233,876 shares in 1995 55,173 42,339
Capital in excess of par value 27,394,902 22,024,604
Accumulated deficit (1,044,347) (4,547,371)
------------------------------
Total stockholders' equity 26,405,728 17,522,212
------------------------------
$31,462,719 $19,895,268
==============================
</TABLE>
See accompanying notes to financial statements. F - 3
<PAGE> 57
STRATASYS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
==================================================================================
YEARS ENDED DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
SALES $22,919,818 $10,275,186
COST OF SALES 7,888,516 3,906,841
------------------------------
GROSS PROFIT 15,031,302 6,368,345
------------------------------
COSTS AND EXPENSES
Research and development 3,374,039 1,995,696
Selling, general and administrative 9,485,519 4,231,571
------------------------------
12,859,558 6,227,267
------------------------------
OPERATING INCOME 2,171,744 141,078
OTHER INCOME (EXPENSE)
Interest and other income 585,516 303,350
Interest expense (39,236) (50,404)
------------------------------
546,280 252,946
------------------------------
INCOME BEFORE INCOME TAXES 2,718,024 394,024
INCOME TAXES (CREDIT) (785,000) 23,000
------------------------------
NET INCOME $ 3,503,024 $ 371,024
==============================
INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Primary $ .63 $ .09
==============================
Fully diluted $ .62 $ .09
==============================
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Primary 5,583,868 4,022,731
==============================
Fully diluted 5,647,160 4,046,123
==============================
</TABLE>
See accompanying notes to financial statements. F - 4
<PAGE> 58
STRATASYS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
===========================================================================================================================
YEARS ENDED DECEMBER 31, 1996 AND 1995
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL IN
PREFERRED STOCK COMMON STOCK EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT
<S> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1995 264,000 $ 2,640 2,871,210 $28,712 $10,710,951 $ (4,918,395)
COMMON STOCK ISSUED IN EXCHANGE FOR
INTANGIBLE ASSETS 500,000 5,000 2,495,000
SALE OF COMMON STOCK, less related expenses 862,666 8,627 8,818,653
NET INCOME 371,024
-------------------------------------------------------------------------
BALANCES, December 31, 1995 264,000 2,640 4,233,876 42,339 22,024,604 (4,547,371)
COMMON STOCK ISSUED UPON CONVERSION
OF PREFERRED STOCK (264,000) (2,640) 379,437 3,794 (1,154)
SALE OF COMMON STOCK, less related expenses 901,996 9,020 5,341,472
COMMON STOCK ISSUED AS COMPENSATION 2,000 20 29,980
NET INCOME 3,503,024
-------------------------------------------------------------------------
BALANCES, December 31, 1996 -- $ -- 5,517,309 $55,173 $27,394,902 $ (1,044,347)
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
============================================================
YEARS ENDED DECEMBER 31, 1996 AND 1995
- ------------------------------------------------------------
TOTAL
<S> <C>
BALANCES, January 1, 1995 $ 5,823,908
COMMON STOCK ISSUED IN EXCHANGE FOR
INTANGIBLE ASSETS 2,500,000
SALE OF COMMON STOCK, less related expenses 8,827,280
NET INCOME 371,024
-----------
BALANCES, December 31, 1995 17,522,212
COMMON STOCK ISSUED UPON CONVERSION
OF PREFERRED STOCK
SALE OF COMMON STOCK, less related expenses 5,350,492
COMMON STOCK ISSUED AS COMPENSATION 30,000
NET INCOME 3,503,024
-----------
BALANCES, December 31, 1996 $26,405,728
===========
</TABLE>
See accompanying notes to financial statements. F - 5
<PAGE> 59
STRATASYS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
=============================================================================================================
YEARS ENDED DECEMBER 31, 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,503,024 $ 371,024
Adjustments to reconcile net income to
net cash used in operating activities:
Deferred taxes (874,000)
Depreciation and amortization 474,902 226,734
Amortization of intangibles 614,027 213,362
Allowance for sales returns 55,588
Bad debts 220,000 111,154
Amortization of discounts on marketable securities (30,172) (18,798)
Common stock issued for services 30,000
Other 5,660 40,768
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Accounts receivable (8,178,145) (2,001,074)
Inventories (1,699,176) (460,447)
Prepaid expenses (221,266) (85,735)
Accounts payable and other current liabilities 1,979,543 940,957
Unearned maintenance revenues 710,474 256,248
-------------------------------
NET CASH USED IN OPERATING ACTIVITIES (3,409,541) (405,807)
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 1,307,198 6,349,743
Acquisition of marketable securities (1,540,885) (12,639,993)
Proceeds from sale of machinery and equipment 58,264
Acquisition of property and equipment (1,432,387) (683,389)
Payments for intangible assets (822,924) (1,215,212)
Payments for sundry assets, net (34,452) (29,056)
-------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,523,450) (8,159,643)
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of obligations under capital leases (178,589) (170,983)
Proceeds from sale of common stock 5,350,492 8,827,280
-------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,171,903 8,656,297
-------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (761,088) 90,847
CASH AND CASH EQUIVALENTS, beginning of year 4,726,056 4,635,209
-------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 3,964,968 $ 4,726,056
===============================
</TABLE>
See accompanying notes to financial statements. F - 6
<PAGE> 60
STRATASYS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
======================================================================================
YEARS ENDED DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, cash paid during the year for interest $ 39,236 $ 50,404
=========================
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Machinery and equipment acquired under capital
lease obligations $120,012 $ 361,912
=========================
Issuance of common stock in exchange for
intangible assets $ -- $2,500,000
=========================
</TABLE>
See accompanying notes to financial statements. F - 7
<PAGE> 61
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 includes a U.S.
Treasury note and 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> 62
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:
RPS Technology 11 years
Capitalized software development costs 3 years
Patents 17 years
Copyrights and licensed internal code 5 years
The costs of software development, including significant product enhancements,
incurred subsequent to establishing technological feasibility have been
capitalized in accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." Costs incurred
prior to establishment of technological feasibility are charged to research and
development expense.
F - 9
<PAGE> 63
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. The
Company has established warranty programs which enable customers to return a RPS
machine. The Company establishes valuation allowances for estimated returns at
the time of shipment. In additions, accruals for customer discounts are recorded
when revenues are recognized.
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.
F - 10
<PAGE> 64
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
Income Per Common and Common Equivalent Share
Income per common and common equivalent share is based upon the net income
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 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.
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.
F - 11
<PAGE> 65
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
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%.
The purchase price of the intangible assets has been allocated as follows:
RPS Technology $2,558 532
Patents 213,211
Patents Applications 14,214
Copyrights and licensed internal code 56,856
----------
$2,842,813
==========
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.
3. ACCOUNTS RECEIVABLES
At December 31, 1996 and 1995, accounts receivable included balances due from
foreign entities of approximately $3,711,000 and $981,000, respectively.
4. MARKETABLE SECURITIES
Marketable securities contain U.S. debt securities and have been categorized as
available for sale. Marketable securities are recorded in accordance with SFAS
No. 115. During 1996 and 1995, the Company had no significant realized or
unrealized gains or losses.
F - 12
<PAGE> 66
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
5. INVENTORIES
Inventories consist of the following at December 31,:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Finished goods $1,295,803 $329,040
Work in process 264,259 104,787
Raw materials 1,088,928 473,492
-------------------------
$2,648,990 $907,319
=========================
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31,:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Machinery and equipment $ 706,411 $ 338,911
Computer equipment and
software 1,061,312 336,096
Office equipment 235,572 110,194
Leasehold improvements 383,430 137,331
Equipment under capital leases 635,155 586,549
---------------------------
3,021,880 1,509,081
Accumulated depreciation
and amortization (including
$218,597 in 1996 and
$150,953 in 1995 under
capital leases) 837,715 396,753
---------------------------
$2,184,165 $1,112,328
===========================
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31,:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
RPS Technology $2,558,532 $2,558,532
Capitalized software
development costs 1,886,768 1,138,499
Patents 445,868 376,609
Copyrights and licensed
internal code 56,856 56,856
Other 16,837 11,441
---------------------------
4,964,861 4,141,937
Accumulated amortization 845,004 230,977
---------------------------
$4,119,857 $3,910,960
===========================
</TABLE>
F - 13
<PAGE> 67
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
7. INTANGIBLE ASSETS (CONTINUED)
For the year ended December 31, 1996, amortization for computer software
development costs charged to operations was $339,960. For the year ended
December 31, 1995, there was no amortization for capitalized computer software
development costs charged to operations since the products were not available
for general release to customers.
Included in research and development costs for the years ended December 31, 1996
and 1995 are computer software development expenditures of $414,026 and $89,168,
respectively.
8. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Accounts payable and other current liabilities consist of the following at
December 31,:
<TABLE>
1996 1995
<S> <C> <C>
Trade $1,753,643 $ 905,707
Compensation and related
benefits 1,056,552 466,968
Reserve for warranty expenses 362,912 149,803
State income taxes 90,720 23,000
Other 358,728 116,039
---------------------------
$3,622,555 $1,661,517
===========================
</TABLE>
9. OBLIGATIONS UNDER CAPITAL LEASES
Aggregate minimum lease payments for obligations under capital leases in
the years subsequent to December 31, 1996 are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1997 $218,143
1998 82,923
1999 28,367
--------
Total minimum lease payments 329,433
Less amounts representing interest 48,041
--------
Present value of minimum lease payments 281,392
Less current portion 186,415
--------
$ 94,977
========
</TABLE>
F - 14
<PAGE> 68
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>
1996 1995
<S> <C> <C>
Net operating loss
carryforwards $ 142,000 $1,475,000
Depreciation (139,000) (92,000)
Amortization 68,000 12,000
Allowance for doubtful accounts 142,000 53,000
Reserve for warranty expenses 147,000 60,000
Reserve for sales returns, net 24,000
Federal minimum tax credit
carryforwards 14,000 7,000
Research and development tax
credit carryforwards 476,000 295,000
-----------------------------
874,000 1,810,000
Valuation allowance for
deferred tax asset (1,810,000)
-----------------------------
$ 874,000 $ --
=============================
</TABLE>
The net deferred tax asset included the following amounts of deferred tax assets
and liabilities at December 31,:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets $ 1,013,000 $1,902,000
Deferred tax liabilities (139,000) (92,000)
Valuation allowances for
deferred tax asset (1,810,000)
-----------------------------
Net deferred tax asset $ 874,000 $ --
=============================
</TABLE>
At December 31, 1996, the Company had federal and state net operating loss
carryforwards of approximately $247,000 and $1,195,000, respectively, which can
be utilized against future taxable income and expire in various years through
the year 2009.
At December 31, 1996, the Company had research and development tax credit
carryforwards of approximately $476,000, which can be utilized against future
federal income tax and expire in various years through 2016.
F - 15
<PAGE> 69
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
10. INCOME TAXES (CONTINUED)
The components of income taxes (credit) for the year ended December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
FEDERAL, deferred $(699,000) $ --
------------------------
STATE AND OTHER
Current 82,000 23,000
Deferred (168,000)
------------------------
(86,000) 23,000
------------------------
$(785,000) $23,000
========================
</TABLE>
A reconciliation of income tax expense to the federal statutory rate is as
follows for the years ended December 31,:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Federal statutory rate 34.0 % 34.0%
State income tax 2.0 5.8
Change in valuation (66.7)
Net operating loss
carryforwards (utilized) (34.0)
Other 1.8
----------------------
Effective income tax rate (28.9)% 5.8%
======================
</TABLE>
F - 16
<PAGE> 70
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
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 1996
and 1995, the Company incurred consulting fees relating to this agreement of
approximately $17,000 and $55,000, respectively. In addition, the director
received non-qualified stock options, pursuant to Plan 3 (see Note 15), 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, 1997 1998 1999
<S> <C> <C> <C>
Minimum rentals $ 241,358 $182,473 $103,319
Less: sublease payments (120,000) (84,000) (84,000)
-----------------------------------------
Net rental payments $ 121,358 $ 98,473 $ 19,319
=========================================
</TABLE>
Rent expense for the years ended December 31, 1996 and 1995 was approximately
$364,000 and $222,000, respectively.
The Company entered into a three-year employment agreement, effective October
20, 1994. In 1995, the Board of Directors approved an increase of the minimum
annual salary to $95,000.
13. 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).
On January 1, 1996, the holder of the preferred stock converted all 264,000
shares of the Company's preferred stock into 379,437 shares of the Company's
common stock.
F - 17
<PAGE> 71
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
14. COMMON STOCK
In 1995, the Company's Certificate of Incorporation was amended to increase the
number of authorized shares of common stock to 8,000,000.
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 to purchase 249,487 shares of the Company's common stock.
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.
In 1996, the Company's Certificate of Incorporation was amended to increase the
number of authorized shares of common stock to 15,000,000.
On January 1, 1996, the Company issued 379,437 shares of common stock upon the
exercise of conversion rights by the shareholders of all 264,000 shares of
preferred stock outstanding.
During 1996, the Company issued 2000 shares of common stock as compensation to
the Chief Operating Officer of the Company and charged operations for $30,000.
During 1996, stock options to purchase 240,353 shares of the Company's common
stock were exercised with proceeds to the Company of approximately $1,197,952.
In addition, warrants to purchase 661,643 shares of the Company's common stock
were exercised with net proceeds to the Company of approximately $4,152,540.
15. STOCK OPTIONS AND WARRANTS
The Company has established three employee stock option plans, the Stratasys,
Inc. Employee Stock Option Plan #1 (Plan 1), Stratasys, Inc. 1994 Stock Plan
(Plan 2) and Stratasys, Inc. 1994-2 Stock Plan (Plan 3). The three plans
provide for the granting of options to qualified employees of the Company,
independent contractors, consultants and other persons to purchase 1,300,000
shares of common stock, 100,608 under Plan 1, 199,392 under Plan 2 and 1,000,000
under Plan 3.
F - 18
<PAGE> 72
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
15. STOCK OPTIONS AND WARRANTS (CONTINUED)
All the options under Plan 1 have been granted and the plan expires April 19,
2001. Under Plan 2, 196,992 options have been granted. Since the adoption of
Plan 3, options to purchase an aggregate of 715,452 shares of common stock have
been granted. All options under the above plans are granted at a price not less
than the fair market value of the Company's common stock at dates of grant and
are exercisable over five years.
During 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 and 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 all
grants were not less than the market price of the Company's common stock at the
date of grant.
The following summarizes the information relating to outstanding stock options
and the activity during 1996 and 1995:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF PER SHARE EXERCISE
SHARES OPTION PRICE PRICE
<S> <C> <C> <C>
Shares under option
at January 1, 1995 413,789 $ .01 - $ 6.00 $ 4.36
Granted in 1995 362,437 5.25 - 20.69 18.23
Exercised in 1995 (42,324) .01 - 3.48 1.21
------------------------------------------
Shares under option
at December 31, 1995 733,902 1.59 - 20.69 11.39
Granted in 1996 314,414 15.56 - 23.13 17.53
Exercised in 1996 (240,353) 1.59 - 6.00 5.27
Forfeited in 1996 (75,064) 5.25 - 23.13 18.25
------------------------------------------
Shares under option
at December 31, 1996 732,899 $ 1.59 - $21.44 $10.15
==========================================
Shares exercisable at
December 31, 1996 279,709 $ 1.59 - $16.94 $ 6.49
==========================================
</TABLE>
F - 19
<PAGE> 73
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
15. STOCK OPTIONS AND WARRANTS (CONTINUED)
The Company, as part of sales of common stock and other agreements, has issued
warrants to purchase the Company's common stock. The following summarizes the
information relating to outstanding warrants and the activity during 1996 and
1995:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF PER SHARE EXERCISE
SHARES WARRANT PRICE PRICE
<S> <C> <C> <C>
Shares under warrants
at January 1, 1995 649,353 $ 3.00 - $ 8.00 $ 5.54
Granted in 1995 254,487 14.00 - 21.00 17.25
Exercised in 1995 (4,792) 5.80 - 5.80 5.80
----------------------------------------------
Shares under warrants
at December 31, 1995 899,048 3.00 - 21.00 8.86
Granted in 1996 13,000 18.50 - 18.50 18.50
Exercised in 1996 (661,643) 3.00 - 18.00 6.36
----------------------------------------------
Shares under warrants
at December 31, 1996 250,405 $ 5.80 - $21.00 $15.95
==============================================
Shares exercisable at
December 31, 1996 250,405 $ 5.80 - $21.00 $15.83
==============================================
</TABLE>
The warrants outstanding at December 31, 1996 expire between July 1998 and March
2001.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the Company's three stock option plans and stock purchase
warrants.
F - 20
<PAGE> 74
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
15. STOCK OPTIONS AND WARRANTS (CONTINUED)
Had compensation cost for the Company's three stock option plans and stock
purchase warrants been determined based on the fair value at the grant date of
awards in 1995 and 1996 consistent with the provisions of SFAS 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net Income - as reported $3,503,024 $ 371,024
Net income (loss) - pro forma 2,865,041 (370,098)
Earnings per share - as reported .62 .09
Earnings (loss) per share - pro forma .51 (.09)
</TABLE>
16. FOREIGN SALES
Export sales were as follows for the years ended December 31,:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Europe $5,916,000 $3,098,000
Asia 2,180,000 1,302,000
Others 769,000 680,000
---------------------------
$8,865,000 $5,080,000
===========================
</TABLE>
17. CONCENTRATION OF CREDIT RISK
The Company's cash, including a U.S. Treasury note and money market account of
approximately $3,419,000, 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.
F - 21
<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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<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................................................ 46
Shares Eligible for Future Sale........................................... 47
Plan of Distribution..................................................... 48
Amendments to Prospectus.................................................. 48
Legal Matters............................................................. 49
Experts................................................................... 49
Financial Statements...................................................... F-1
</TABLE>
250,897 Shares
STRATASYS, INC.
Common Stock
PROSPECTUS
April 30, 1997
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except to the extent hereinafter set forth, there is no statute, charter
provision, By-law, contract or other arrangement under which any controlling
person, Director or officer of the Company, a Delaware corporation (the
"Company or the "Registrant"), is insured or indemnified in any manner against
liability which he may incur in his capacity as such.
Under Section 145 of the Delaware General Corporation Law ("GCL"),
directors and officers may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation (a "derivative action")) if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard of care is applicable in the case of derivative actions,
except that indemnification only extends to expenses (including attorneys'
fees) incurred in connection with the defense or settlement of such an action.
Moreover, the GCL requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a
person may be entitled under the Certificate of Incorporation of the Company
or any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise.
ARTICLE VI of the By-laws of the Company states as follows:
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall indemnify, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, each of its directors
and officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was
an agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director
or officer of the corporation, (ii) who is or was serving at the request of
the corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, or (iii) who was a director or
officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
II-1
<PAGE> 77
Article 11 of the Company's Certificate of Incorporation provides for the
indemnification of officers and directors to the fullest extent allowed by the
GCL.
The GCL provides, in part, that no director shall be personally liable to a
corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such director as a director, except:
(i) for breach of the director's duty of loyalty to the corporation or its
stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(iii) pursuant to Section 174 of the GCL; or
(iv) for any transaction from which the director derived an improper
personal benefit.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Company in connection with the issuance and
distribution of the securities being registered are estimated below:
<TABLE>
<S> <C>
SEC registration fee .......... $ 0
Blue sky fees and expenses .... 0
Legal fees and expenses ....... 20,000.00
Printing and engraving expenses 7,500.00
Accounting fees ............... 1,000.00
Miscellaneous ................. 1,000.00
----------
Total .................. $29,500.00
==========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Common Stock
(a) In 1994, the Company sold an aggregate of 70,000 shares of its Common
Stock to two unaffiliated persons for the aggregate consideration of $350,000
($5.00 per share), pursuant to subscription agreements. There were no
underwriters and no underwriting commissions. The shares of Common Stock were
issued in reliance upon an exemption from registration provided by Section
4(2) of the Securities Act.
(b) In July 1994, the Company sold an aggregate of 24,000 shares of its Common
Stock to Scott Crump and Lisa Crump for an aggregate consideration of $120,000
($5.00 per share) pursuant to the 1993 Subscription Agreement. Scott Crump, a
Director of the Company, acquired 12,000 of such shares. There were no
underwriters and no underwriting commissions. The shares of
II-2
<PAGE> 78
Common Stock were issued in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.
(c) In October 1994, the Company issued an aggregate of 45,275 shares of its
Common Stock to the holder of its Preferred Stock and a warrant to purchase
100,000 shares of Common Stock in consideration (i) the cancellation of
certain redemption rights of such holder, (ii) cancellation of all accrued
dividends on the Preferred Stock, and (iii) the cashless exercise of such
warrants. There were no underwriters and no underwriting commissions. The
shares of Common Stock were issued in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act.
(d) In October 1994, the Company sold an aggregate of 250,000 warrants ($3.00
per share exercise price) and 150,000 warrants ($7.00 per share exercise
price) to Vertical Financial, Inc. in consideration for services rendered.
There were no underwriters and no underwriting commissions. The warrants were
issued in reliance upon an exemption from registration provided by Section
4(2) of the Securities Act.
(e) In October 1994, the Company sold an aggregate of 120,000 warrants ($7.50
per share exercise price) to M.H. Meyerson & Co., Inc. for a purchase price of
$120.00 in consideration for services rendered as underwriter for the
Company's initial public offering. There were no underwriters and no
underwriting commissions. The warrants were issued in reliance upon an
exemption from registration provided by Section 4(2) of the Securities Act.
(f) In January 1995, the Company sold an aggregate of 500,000 shares to
International Business Machines Corporation ("IBM") as partial consideration
for the purchase of certain rapid prototyping technology and related assets of
IBM. There were no underwriters and no underwriting commissions. The shares of
Common Stock were issued in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.
(g) In May 1995, the Company sold an aggregate of 86,667 shares of its Common
Stock to three employees of the Company for the aggregate consideration of
$520,002 ($6.00 per share), pursuant to a subscription agreements. There were
no underwriters and no underwriting commissions. The shares of Common Stock
were issued in reliance upon an exemption from registration provided by
Section 4(2) of the Act.
(h) In May 1995 and July 1995, the Company granted 50,000 and 35,000 options,
respectively, to purchase a like number of shares of Common Stock to Salvani
Investments, Inc., at an exercise price of $7.00 and $12.00 per share,
respectively, in consideration for its financial consulting services to the
Company. There were no underwriters and no underwriting commissions. The
options were issued in reliance upon an exemption from registration provided
by Section 4(2) of the Act.
II-3
<PAGE> 79
(i) In August 1995, the Company sold an aggregate of 335,333 shares of its
Common Stock and warrants to purchase 67,067 shares of Common Stock, at an
exercise price of $18.00 per share, in a private placement to 14 unaffiliated
persons for the aggregate consideration of $4,023,996 ($12.00
per share and 1/5 warrant), pursuant to subscription agreements dated August
1995. The placement agent received a commission of $402,996. The placement
agent for this offering was Brookehill Equities, Inc., for which it received
commissions of approximately $402,000. The securities were issued in reliance
upon an exemption from registration provided by Section 4(2) and 4(6) of the
Securities and Rules 505 and 506 promulgated thereunder.
(j) In November 1995, the Company sold an aggregate of 78,710 Units, which
consisted of 393,550 shares of its Common Stock, warrants to purchase 78,710
shares of Common Stock ($21.00 per share exercise price) and warrants to
purchase 39,355 shares of Common Stock ($14.00 per share exercise price) in a
private placement to 13 unaffiliated persons for the aggregate consideration
of $5,509,700 ($70.00 per Unit), pursuant to subscription agreements dated
November 1995. The placement agent for this offering was Brookehill Equities,
Inc. which received a commission of $550,970. A number of the shares and
warrants were issued in reliance upon an exemption from registration provided
by Section 4(2) and Rule 506 of Regulation D promulgated under the Securities
Act, and a number of the shares and warrants were issued in reliance upon an
exemption from registration provided by Regulation S promulgated under the
Securities Act.
(k) In November 1955, the Company sold warrants to purchase 39,355 shares of
Common Stock ($14.00 per share exercise price) to Brookehill Equities, Inc.
for an aggregate purchase price of $39.36, in consideration for its services
as placement agent for the Company's November 1995 private placement. There
were no underwriters and no underwriting commissions. The warrants were issued
in reliance upon an exemption from registration provided by Section 4(2) of
the Securities Act.
(l) In November 1995, the Company sold warrants to purchase 25,000 shares of
Common Stock ($14.00 per share exercise price) to Sunrise Securities Corp. for
an aggregate purchase price of $25.00, in consideration for its services as a
finder in the Company's November 1995 private placement. There were no
underwriters and no underwriting commissions. The warrants were issued in
reliance upon an exemption from registration provided by Section 4(2) of the
Securities Act.
(m) On May 10, 1996, holders of warrants to purchase 150,000 shares of Common
Stock at an exercise price of $8.00 per share and holders of warrants to
purchase 250,000 shares of Common Stock at an exercise price of $3.00 per
share exercised such warrants. Upon exercise, each of the holders paid the par
value of the shares purchased and gave a promissory note for the balance of
the exercise price, which was payable on May 10, 1997. Each of the promissory
notes has been paid in full. There were no underwriters and no underwriting
commissions. The shares of Common Stock sold pursuant to the exercise of such
warrants were sold in reliance upon the exemption from registration provided
by Section 4(2) of the Securities Act.
II-4
<PAGE> 80
(n) In July, 1996, the Company sold 2,000 shares of Common Stock to an officer
of the Company in consideration for services rendered. There were no
underwriters and no underwriting commission.
The shares were issued in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.
(o) From November 1992 through June 8, 1995, the Company granted options to
purchase an aggregate of 590,343 shares of Common Stock, pursuant to the
Company's three stock option plans, to 90 employees, directors or consultants
at exercise prices ranging from $.01 per share to $13.06 per share which
shares were subsequently registered for sale on the Company's Registration
Statement on Form S-8, effective when filed with the Securities and Exchange
Commission on June 9, 1995. There were no underwriters or underwriting
commissions. The options were issued in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act.
(p) From January 2, 1996 through September 3, 1996, the Company granted
options to purchase an aggregate of 87,552 shares of Common Stock pursuant to
Company's 1994-2 Stock Plan, as amended, to 47 employees, directors or
consultants at exercise prices ranging from $16.50 to $23.50 per share. There
were no underwriters or underwriting commissions. The options were issued in
reliance upon an exemption from registration provided by Section 4(2) of the
Securities Act.
(q) From September 4, 1996 through April 21, 1997, the Company granted options
to purchase an aggregate of 326,500 shares of Common Stock pursuant to the
Company's stock option plans to 125 employees, directors or consultants at
exercise prices ranging from $15.56 to $21.81 per share. There were no
underwriters or underwriting commissions. The options were issued in reliance
upon an exemption from registration provided by Section 4(2) of the Securities
Act.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company. (3)
3.2 By-Laws of the Company. (1)
3.3 Amendment to Certificate of Incorporation of the Company. (7)
4.1 Agent's Warrant issued to R.J. Steichen & Company dated November 12, 1993. (1)
4.2 Agent's Warrant issued to R.J. Steichen & Company dated December 13, 1993. (1)
4.3 Form of Common Stock purchase warrants issued by the Company dated as of November 12,
1993 and December 13, 1993. (1)
</TABLE>
II-5
<PAGE> 81
<TABLE>
<S> <C>
4.4 Form of Underwriter's Warrant. (1)
4.5 Form of Common Stock purchase warrant issued by the Company in its August 1995 private
placement (2).
4.6 Form of 3-year Common Stock purchase warrants issued by the Company in its November
1995 offering under Regulation D and Regulation S. (6)
4.7 Form of 3-month Common Stock purchase warrants issued by the Company in its November
1995 offering under Regulation D and Regulation S. (6)
4.8 Form of Placement Agent's warrant issued by the Company in its November 1995 offering
under Regulation D and Regulation S. (6)
4.9 Form of warrant issued to Sunrise Securities Corp. by the Company in connection with its
November 1995 offering under Regulation D and Regulation S. (6)
5.1 Opinion of Snow Becker Krauss P.C. (6)
10.1 Non-Competition Agreement between the Company and S. Scott Crump, dated October 15,
1990. (1)
10.2 Non-Competition Agreement between the Company and S. Lisa Crump, dated October 15,
1990. (1)
10.3 Employee Confidentiality Agreement between the Company and S. Scott Crump, dated
October 15, 1990. (1)
10.4 Employee Confidentiality Agreement between the Company and Lisa Crump, dated October
15, 1990. (1)
10.5 Stratasys, Inc. Employee Stock Option Plan #1. (1)
10.6 Joint Development Agreement between the Company and 3M Corporation, dated July 2,
1993. (1)
10.7 Amended and Restated Stratasys, Inc. 1994 Stock Plan. (3)
10.8 Stratasys, Inc. 1994-2 Stock Plan. (3)
10.9 Amendment to the Stratasys, Inc. 1994-2 Stock Plan, dated May 23, 1996. (11)
</TABLE>
II-6
<PAGE> 82
<TABLE>
<S> <C>
10.10 Consulting Agreement with Vertical Financial Inc. dated June 29, 1994. (1)
10.11 Employment Agreement Between the Company and S. Scott Crump, dated September 1,
1994. (2)
10.12 Consulting Agreement with Arnold Wasserman dated December 15, 1994. (3)
10.13 Asset Purchase Agreement between the Company and IBM dated January 1, 1995. (4)
10.14 Registration Rights Agreement between the Company and IBM dated January 1, 1995. (4)
10.15 Equipment Lease Agreement between the Company and IBM dated January 1, 1995. (4)
10.16 Assignment, dated October 23, 1989, from S. Scott Crump to the Company with respect to
a patent application for an apparatus and method for creating three-dimensional objects. (9)
10.17 Assignment, dated June 5, 1992, from S. Scott Crump to the Company with respect to a
patent application for a modeling apparatus for three-dimensional objects. (9)
10.18 Assignment, dated June 1, 1994, from S. Scott Crump, James W. Comb, William R.
Priedemann, Jr., and Robert Zinniel to the Company with respect to a patent application for
a process and apparatus of support removal for three-dimensional modeling. (9)
10.19 Warrant Modification and Exercise Agreement, dated as of May 10, 1996, by and among the
Company, Vertical Financial Inc., Robb Matzner, Nathan Low, Floy L. Shaeffer, Donald
Heimstaedt, and Sunrise Securities Corp. (9)
10.20 Amendment to Warrant Modification and Exercise Agreement, dated as of
July 10, 1996, by and among the Company Vertical Financial Inc., Robb
Matzner, Nathan Low, Floy L. Shaeffer, Donald Heimstaedt, Sunrise
Securities Corp., and Israel Securities Center Corp.
(10)
10.21 Lease between the Company and Richard A. Burke, dated October 14, 1996. (12)
16.1 Letter from the Company's former accountants certifying change of accountants dated January
20, 1995. (5)
21.1 Subsidiaries of the Company. (6)
23.1 Consent of Snow Becker Krauss P.C. (contained in Exhibit 5.1).
</TABLE>
II-7
<PAGE> 83
<TABLE>
<S> <C>
23.2 Consent of Rothstein, Kass & Company, P.C.
24.1 Power of Attorney (see Signature Page to this Registration Statement).
</TABLE>
(1) Incorporated by reference from the Company's Registration Statement on
Form SB-2 (File No. 33-83638-C) filed September 2, 1994.
(2) Incorporated by reference from the Company's Form 8-K, dated August 24,
1995.
(3) Incorporated by reference from the Company's Form 10-KSB for the year
ended December 31, 1994.
(4) Incorporated by reference from the Company's Form 8-K, Amendment No.2,
dated January 1, 1995.
(5) Incorporated by reference from the Company's Form 8-K, dated December
20, 1994.
(6) Incorporated by reference from the Company's Registration Statement on
Form SB-2 (File No. 33-99108) filed November 8, 1995.
(7) Incorporated by reference from the Company's Form 10-QSB for the nine
months ended September 30, 1995.
(8) Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (File No. 33-99108) filed December
20, 1995.
(9) Incorporated by reference from the Company's Registration Statement on
Form S-3 (File No. 333-4185) filed May 21, 1996.
(10) Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form S-3 (File No. 333-4185) filed July 12,
1996.
(11) Incorporated by reference from Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form SB-2 (File No. 33-99108)
filed on September 16, 1996.
(12) Incorporated by reference from the Company's Annual Report on Form
10K-SB for the year ended December 31, 1996.
ITEM 28. UNDERTAKINGS.
The Company hereby undertakes:
II-8
<PAGE> 84
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Act, to treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
(6) For determining any liability under the Act, to treat the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the small business issuer under Rule 424(b)(1), or (4) or 497(h)
under the Act as part of this registration statement as of the time the
Commission declared it effective.
(7) For determining any liability under the Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-9
<PAGE> 85
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing this Post-Effective Amendment on Form SB-2
and authorized this registration statement to be signed on its behalf by the
undersigned, in Eden Prairie, Minnesota, on April 30, 1997.
STRATASYS, INC.
By: /s/ S. Scott Crump
----------------------------
S. Scott Crump, President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by the following
person, in the capacities indicated, on April 30, 1997:
<TABLE>
<S> <C>
/s/ S. Scott Crump Chairman of the Board of Directors, President,
-----------------------------
S. Scott Crump Chief Executive Officer, Chief Financial Officer (Principal
Executive Officer and Principal Accounting and Financial Officer)
/s/ Thomas W. Stenoien Director of Finance
-----------------------------
Thomas W. Stenoien
* Director
-----------------------------
Ralph E. Crump
* Director
-----------------------------
Clifford H. Schwieter
* Director
-----------------------------
Arnold J. Wasserman
* Director
-----------------------------
Gregory L. Wilson
</TABLE>
By: /s/ S. Scott Crump
--------------------------------------
* S. Scott Crump, Attorney-in-Fact
for each of the above named persons
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on From
SB-2 of Stratasys, Inc., of our report dated February 14, 1997 for the year
ended December 31, 1996 and our report dated February 22, 1996 for the year
ended December 31, 1995, and to the reference to our firm under the caption
"Experts" in such Prospectus, which is part of this Registration Statement.
Rothstein, Kass & Company, P.C.
Roseland, New Jersey
April 30, 1997
