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STEREOTAXIS, INC. filed this Form S-1/A on 06/17/2004
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(Information as of March 31, 2004 and for the three months ended
March 31, 2003 and 2004 is unaudited)

are forfeitable when performance milestones described in the option agreements may not occur. When the exercise price of the employee or director stock options is less than the estimated fair value of the underlying stock (intrinsic value) at the date of grant or for variable options through the vesting or forfeiture date, the Company records deferred compensation for the intrinsic value and amortizes the amount to expense over the service period on a straight-line basis. Deferred compensation for variable options granted to employees and directors is periodically remeasured through the vesting or forfeiture date.

       Stock options issued to nonemployees, including individuals for scientific advisory services, are recorded at their fair value as determined in accordance with SFAS No. 123 and Emerging Issues Task Force (EITF) No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction With Selling, Goods or Services, and recognized over the service period. Deferred compensation for options granted to nonemployees is periodically remeasured through the vesting or forfeiture date.

       The following table illustrates the effect on net loss if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:

Three Months Ended
Year Ended December 31 March 31

2001 2002 2003 2003 2004

Net loss, as reported
  $ (17,005,198 )   $ (21,458,658 )   $ (24,036,837 )   $ (4,905,670 )   $ (7,849,997 )
Add total stock-based compensation cost included in net loss
    622,299       483,638       492,168       125,001       183,553  
Deduct total stock-based compensation expense under fair value method
    (695,733 )     (1,104,659 )     (1,793,447 )     (456,291 )     (636,907 )
Pro forma net loss
  $ (17,078,632 )   $ (22,079,679 )   $ (25,338,116 )   $ (5,236,960 )   $ (8,303,351 )
Net loss per share, basic and diluted, as reported
    (6.39 )     (5.33 )     (5.10 )     (1.10 )     (1.48 )
Net loss per share, basic and diluted, pro forma
    (6.42 )     (5.49 )     (5.38 )     (1.18 )     (1.57 )

       The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for the years ended 2001, 2002, 2003 and the three months ended March 31, 2003 and 2004: dividend yield of 0%, expected volatility of 120%, risk-free interest rates ranging from 1.09% to 5.28%, and an expected life of ten years. The weighted average fair value of the options at grant date was $0.45, $1.32, and $1.65 for 2001, 2002, and 2003, and $1.65 and $1.88 for the three months ended March 31, 2003 and 2004, respectively. Future pro forma results of operations may be materially different from amounts reported, as future years will include the effects of additional stock option grants.

       Option valuation models require the input of highly subjective assumptions. Because the Company’s employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable measure of the fair value of employee stock options.


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