Breaking the mold.

Helisys Inc. makes three-dimensional models for industrial molds out of two-dimensional paper

Russian emigrant Michael Feygin learned two important lessons after founding Helisys Inc. in 1985:A good product is one thing, but there's just no substitute for a rock-solid reputation. And when it comes to starting up a new high-tech company, there are few things as important as cold, hard investor cash.

Feygin learns his lessons well. After surviving a rough stretch in its early going, in which reliability questions cropped up, Helisys was recently identified in an industry survey as the fourth fastest-growing high-tech firm in Los Angeles County.

Revenues were up more than 7,000 percent between 1991 and 1995, according to the survey, which was performed by the Economic Development Corp. of L.A. County and the Los Angeles Regional Techology Alliance.

Helisys manufactures machines that make it possible to design a three-dimensional image on the computer and then produce a physical model of it.

The machines work by breaking down computer-generated images into hundreds of two-dimensional cross sections - similar to taking a virtual orange and reducing it to paper-thin slices. Each slice is then cut from a special adhesive paper using lasers, and the slices are stuck together to make the three-dimensional orange.

Physical models are often used to create molds for finished metal and plastic products. Thus, a paper model of a car part produced by Helisys would be encased in plaster to produce a mold, which would then be cast with metal to produce the final car part.

The Helisys machine comes in two sizes: a large one that sells for about $250,000 per unit, and a smaller one that sells for about $100,000.

The process and machines were designed by Feygin, who came to the United States with his family from the former Soviet Union in 1978. Rather than raise his start-up capital from investors, Feygin relied on government and private grants to pay for the development and marketing of his machines.

As a result, his company was constantly undercapitalized until Helisys finally raised $7 million through an initial public offering eight months ago.

"I started building a prototype of the real machine in 1990 (using grant money). I exhibited it at several shows, and several people were so impressed they were willing to put money up front to produce those machines," said Feygin, explaining how he financed production prior to this year's offering.

His earliest clients included such big-name firms as Ford Motor Co., General Motors Corp. and Dana Corp. Since then, Helisys has added a host of other important brands to its client list, including Mercedes Benz, Toyota, Nissan, Fiat, Rubbermaid, Motorola and Caterpillar.

A constant capital shortage in the early years put a damper on research and development, ultimately hurting Helisys' reputation.

"We grew in such a boot-strop way that our early products weren't completely reliable," said Feygin. "It might not have happened that way if we were better capitalized in the beginning. But that's our history, and we have to live with it."

Following its IPO in March, Helisys beefed up its research and development department, which recently developed and introduced a more reliable machine. The company's R&D expenditures have grown considerably since the IPO, from $560,000 in fiscal 1994 to $1.3 million in the first nine months of the company's fiscal 1996.

The company is also exploring several joint ventures that might help it develop and produce new machines to make three-dimensional models using other materials than paper, such as plastic and metal.

Despite the growing emphasis on quality and R&D, Helisys is still haunted by a shaky reputation among many of its earliest customers.

As a result, a large portion of the company's new business - between 65 and 70 percent - is coming from overseas, said Feygin.

The tough assignment of convincing U.S. customers to give Helisys another chance is handled by Jeny Janson, vice president of North American sales.

"It's tougher in the domestic market, because we have to re-establish a reputation of quality. The domestic market needs some recovery," Feygin said.

In an effort to regain the trust of one early client, General Motors, Helisys has offered to swap the older machines it sold to the auto manufacturer for newer models.

Reputation and capitalization problems aside, Helisys' bottom line has still grown at a lightning pace since the company started selling machines in 1992.

Net sales have nearly quadrupled in the last three years, jumping from $2.4 million in 1993 to $11.5 million in 1995. During that time, employment also rose from 25 people in 1993 to 104 at present.

Like Feygin, a majority of the 23 engineers at Helisys are foreign-born. Employees at the company come from the Philippines, Russia, China and Korea.

"From a technical standpoint, we sometimes have a hard time finding qualified Americans, who tend to go into other fields like medicine, law and business," said Feygin. "Of our engineering staff, about 60 percent are foreign-born, while 40 percent are Americans."

One of Feygin's biggest challenges so far has been making the transition from a boot-strap, start-up company to a larger, more corporate-style firm.

"It was tough because I had to learn a lot of things on my own," he said. "After the IPO, I had to go out and hire several vice presidents, including a director of sales, director of marketing, a new director of engineering, a service director and a number of new high-level engineers."

In a research report, Cruttenden Roth Inc. of Irvine, which was the firm that helped take the company public, was cautiously optimistic about recent changes made at Helisys.

"Overall, while we are enthusiastic in regards to the latest management additions, the company must overcome the current crisis," said the report, referring to delays in Helisys' roll-out of its latest machine models.

"We recommend that holders of Helisys stock remain on-board at this time and take a longer term view in light of the positive changes we are beginning to see get underway," the report said.

Spotlight

Helisys Inc.

Year Founded: 1990 Core Business: Designing and manufacturing prototyping machines Employees in 1990: 2 Employees in 1996: 105 Sales in 1993: $2.4 million Sales in 1995: $11.5 million Top Executive: Michael Feygin Goal: To become a premier producer of prototyping machines using paper and other materials Driving Force: A desire to be the industry leader in the emerging field of companies that develop rapid prototyping systems