================================================================================

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                    ----------------------------------------

                                    FORM 10-K

|X|   Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934

For the fiscal year ended December 31, 2003 or

|_|   Transition report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

For the transition period from _______ to _______

Commission file number 1-13400


                                 STRATASYS, INC.
             (Exact Name of Registrant as Specified in Its Charter)


          Delaware                                             36-3658792
(State or Other Jurisdiction of                             (I.R.S. Employer
Incorporation or Organization)                             Identification No.)


                14950 Martin Drive, Eden Prairie, Minnesota 55344
                    (Address of Principal Executive Offices)
                                 (952) 937-3000
              (Registrant's Telephone Number, Including Area Code)


              Securities Registered Under Section 12(b) of the Act:


    Title of Each Class              Name of Each Exchange on Which Registered
    -------------------              -----------------------------------------
Common stock, $.01 par value                  The Pacific Exchange Inc.


           Securities Registered Under Section 12(g) of the Act: None


      Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
past 90 days. Yes |X| No |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Act). Yes |X| No |_|

      The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of June 30, 2003, the last business day of
the Registrant's most recently completed second quarter, was approximately
$173,000,000.00. On such date, the closing price of the Registrant's Common
Stock, as quoted on the Nasdaq National Market (as adjusted to reflect the
3-for-2 stock split in the form of a stock dividend effected in December 2003),
was $23.05.

      The Registrant had 10,260,595 shares of common stock outstanding as of
March 8, 2004.


                       DOCUMENTS INCORPORATED BY REFERENCE

      Part III of the Annual Report on Form 10-K is herein incorporated by
reference from the Registrant's Definitive Proxy Statement to be filed with the
Securities and Exchange Commission with respect to the Registrant's Annual
Meeting of Stockholders scheduled to be held on May 6, 2004.

================================================================================

<PAGE>

ITEM 1. BUSINESS.

GENERAL DEVELOPMENT OF BUSINESS

      We develop, manufacture, and sell a family of rapid prototyping ("RP")
devices, which includes a line of three dimensional ("3D") printing devices, all
of which create physical models from computerized designs. We were incorporated
in Delaware in 1989 and our executive offices are located in Eden Prairie,
Minnesota. Our RP systems are based on our core patented fused deposition
modeling ("FDM(R)") technology or on our patented Genisys(R) technology. We sold
our first product, the 3D Modeler(R), commercially in April 1992 and introduced
our second product, the Benchtop, in June 1993. Other recent significant
developments in our business are set forth below:

      o     In February 2002, we introduced the Dimension. Dimension offers ABS
            modeling capabilities on a desktop 3D printer platform. We believe
            that Dimension, when introduced at $29,900, was the lowest priced
            system in the RP and 3D printing markets.

      o     In March 2002, we introduced the Prodigy Plus(TM). This system
            incorporates our WaterWorks soluble support system on the Prodigy
            platform, and is further enhanced by the addition of our InSight(TM)
            software. Commercial shipments commenced in May 2002.

      o     In July 2003 we introduced FDM Vantage(TM). Vantage utilizes proven
            FDM technology to build prototypes in either polycarbonate ("PC") or
            ABS. It is an extension of the FDM Titan(TM) design platform.

      o     In September 2003 we entered into an agreement with Objet Geometries
            Ltd., to exclusively distribute their Eden333 RP system in North
            America, including Mexico and Canada. The Eden333 uses inkjet
            technology to jet ultra-fine layers of UV-cured resin to build RP
            models and prototypes.

      o     In December 2003 we announced significant thoughput enhancements for
            Titan, offering users a 50% improvement in build speed over the
            previous generation of Titan.

      o     In February 2004 we announced the introduction of Dimension SST(TM).
            Dimension SST incorporates all the functionality of Dimension with
            an enhanced automatic soluble support removal system. This system
            gives users greater convenience in the design process while allowing
            for the creation of models and prototypes that involve more complex
            design geometries. Dimension SST's list price is $34,900.
            Concurrently with this introduction, we reduced the price of
            Dimension to $24,900.

      o     In March 2004 we announced the introduction of Triplets, which
            offers three variations of our FDM Vantage RP system. Prices will
            range from $99,000 for the base model Vantage to $195,000 for the
            fully equipped Vantage SE. The models are differentiated by the
            speed at which they build prototypes, by the size of the build
            envelope, by additional canister bays, which allow for longer build
            cycles, and by price. Triplets are expected to be commercially
            available in May 2004.

DESCRIPTION OF BUSINESS

      We are a leader in the office prototyping market, since our high
performance RP devices and 3D printers can be used in office environments
without expensive facility modification. We develop, manufacture, market, and
service a family of 3D printers and other RP systems 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. Our computerized modeling systems use our proprietary
technology to make models and prototypes directly from a designer's
three-dimensional CAD in a matter of hours.

<PAGE>


      We believe that the high performance RP and 3D printing systems using our
FDM technology are the only RP systems commercially available that can produce
prototypes and models from plastic without relying on lasers. This affords our
products a number of significant advantages over other commercially available
three-dimensional rapid prototyping technologies, which rely primarily on lasers
to create models. Such benefits include:

      o     the ability to use the device in an office environment due to the
            absence of hazardous emissions

      o     little or no post-processing

      o     ease of use

      o     the need for relatively little set up of the system for a particular
            project

      o     the availability of a variety of modeling materials

      o     modeling in production-grade plastics for functional testing

      o     no need for costly replacement lasers and laser parts

      Our 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
our FDM systems begins with the creation of a 3D geometric model on a CAD
workstation. The model is then imported into our proprietary software program,
which mathematically slices the CAD model into horizontal layers that are
downloaded into the system. A spool of thin thermoplastic modeling material
feeds into a moving FDM extruding head, which heats the material to a
semi-liquid state. This semi-liquid material is extruded and deposited, one
ultra-thin layer at a time, on a base (the "X-Y Stage") in a
thermally-controlled 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.

      We also believe that the Eden333 provides us with an additional RP
technology that complements our core FDM technology. The Eden333 offers
extremely fast prototype build times, with superior surface finish and
resolution. Like the FDM technology, Eden333 systems:

      o     can be used in the office environment

      o     create models with a one-step process

      o     are easy to use

      o     have a low acquisition price


APPLICATIONS FOR RAPID PROTOTYPING AND 3D PRINTING

      Both high-end RP systems and 3D printers allow for the physical modeling
of a design using a special class of machine technology. These systems take data
created from CAD data, CT and MRI scan data or 3D digitized data to quickly
produce models, using an additive approach. Traditionally, RP has been used by
organizations to accelerate product development. Many companies use RP to test
form, fit and function to help improve the time to market.

      Frequently, users report rapid pay-back times by using RP, as they
accelerate their product development cycle and reduce post-design flaws through
more extensive design verification and testing.

      RP also represents opportunities for rapid manufacturing ("RM"). RM
involves the use of prototypes fabricated directly from the RP system that are
subsequently incorporated into the user's end product or process. RM is
particularly attractive in applications that require short-run or low volume
parts that require rapid turn-around, and for which tooling would not be
appropriate due to small volumes. Our FDM Titan, Vantage, and Maxum products are
well-suited for these types of applications.


                                       2
<PAGE>

      An emerging market segment for RP systems is Rapid Tooling ("RT").
Although not clearly defined today, RT is driven by RP systems and allows for
the production of molds directly from CAD data or indirectly by producing custom
mold inserts.

      During the past two years, the largest growth segment of the RP market has
been 3D printing products. 3D printers are low-cost RP systems (typically under
$40,000) that reside in the design/engineering office environment, allowing
product development organizations quick access to an RP system. Based upon data
and estimates furnished in the 2003 Wohler's Report, we believe we have shipped
approximately 27% of all RP systems since the industry's inception in 1987, an
improvement over the 24% realized through 2002.

      We have shipped approximately 3,000 systems since our inception. A wide
variety of design and manufacturing organizations use our systems. Current
applications include:

      o  Aerospace                            o  Automotive

      o  Consumer Products                    o  Business Machines

      o  Educational Institutions             o  Electronics

      o  Medical Systems                      o  Medical Analysis

      o  Mold Making                          o  Tooling

      Additional future applications include:

      o  Architectural design                 o  Rapid manufacturing of
                                                 custom parts

      o  Free-form graphic design             o  Secondary tooling and
                                                 mold-making

      Among potential medical applications, rapid prototyping is being used to
produce accurate models of internal organs, bones or skulls for pre-operative
evaluations or modeling of prostheses. In such uses, our RP systems serve as a
peripheral device for CT and MRI devices.

PRODUCTS

MODELING EQUIPMENT

      We have been developing and improving our line of RP products since our
inception in 1989. Since our first commercial product was introduced in 1992, we
have enhanced and expanded our product line. We have improved both the speed and
accuracy of our FDM systems, expanded their build envelopes, introduced a number
of new modeling materials and developed and introduced a low-cost 3D printer. We
have also enhanced and upgraded the software that our systems use to read CAD
files and build the prototypes.

      Each of our products is based upon our patented FDM process or from
technology acquired from IBM and is sold as an integrated system. The system
consists of an RP machine, the software to convert the CAD designs into a
machine compatible format, and modeling materials. Each of our products is
compatible with an office environment and does not require an operator to be
present while it is running.


                                       3
<PAGE>

      Our family of high performance RP and 3D printing systems affords a
customer's product development team, including engineers, designers and
managers, the ability to create prototypes through all stages of the development
cycle. Our products meet the needs of a very demanding and diverse industrial
base by offering a wide range of capability and price from which to choose. The
domestic list prices of our systems range from $24,900 for our Dimension 3D
printer to $250,000 for our high performance FDM Maxum. We also offer special
pricing for trade-in systems and upgrades.

      The Dimension is a 3D printer that allows a user to create parts in ABS
plastic. ABS offers the part strength required for true form, fit and function
testing. Dimension operates in the office, offering speed, ease of use and
networking capabilities at a competitive price. Dimension features our
Catalyst(TM) software, which offers a single push-button operation by automating
all of the required build procedures. We introduced Dimension in February 2002,
although commercial shipments to selected resellers commenced in December 2001.
We believe that Dimension, at a list price of $24,900, is among the
lowest-priced systems in the RP market. Dimension SST is our newest 3D printing
system, which offers users the benefits of our WaterWorks soluble support system
on the Dimension platform. Introduced in February 2004, it is priced at $34,900.

      The Prodigy Plus is our lowest price FDM System that incorporates our
WaterWorks soluble support system and InSight Software. The patented WaterWorks
process allows for the easy removal of supports from a completed prototype model
by simple immersion into a water-based solution. The support material is
dissolved, resulting in a cleaned prototype that eliminates most post-processing
requirements. Prodigy Plus is further enhanced by the addition of our InSight
software. InSight offers the customer a more flexible array of features allowing
for a range of fully automatic operation to individual and customized functions
for each step of the build process. With the combination of ABS, WaterWorks and
InSight software, the Prodigy Plus offers the customer "hands free" operation of
the entire prototype building process. The Prodigy Plus was introduced in March
2002, and we have sold it to customers in a number of industries since that
time.

      The FDM Titan was introduced in 2001 and provides a unique set of features
that addresses demanding customer requirements. Titan offers users the
capability to model with a wide range of engineering thermoplastic materials
including polycarbonate ("PC"), ABS, polyphenysulfone ("PPSF") and other
thermoplastic materials that we expect to release, and also offers WaterWorks.
These modeling materials provide superior strength coupled with heat and
chemical resistance. This combination of properties allows engineers and
designers a variety of options to meet demanding industrial prototyping and
design requirements. Titan has a large build envelope and uses new technology
based on "look ahead" motion profiles that provide faster build speeds. The
Titan also incorporates enhanced ease of use features, such as the InSight
software, automatic material loading and supply changeover.

      In December 2003 we announced a throughput enhancement for Titan users.
This new feature will enable Titan users a 50% improvement in build speed over
the previous generation of Titans.

      In July 2003 we introduced Vantage. Vantage, which is an extension of the
Titan design platform, offers modeling capabilities in PC and ABS, and is priced
lower than Titan.

      The FDM Maxum(TM) was released in late 2000. It incorporates MagnaDrive
technology, which allows the extrusion head to float on a bed of air while being
controlled through electromagnet devices. Its build envelope is among the
largest in the industry, allowing users to build large prototypes. The Maxum
also delivers a fine feature detail capability allowing customers to make
prototypes of very small parts. This feature was developed in conjunction with
Fuji Film Corp. of Japan. Features as small as .005" x .010" may be built,
allowing for increased prototyping capabilities for the telecommunications,
electrical connector and camera and photography industries.

      In September 2003 we entered into an agreement with Objet Geometries Ltd.
to distribute their Eden333 RP system in North American, including Mexico and
Canada. The Eden333 uses inkjet technology to jet ultra-fine layers of UV-cured
resin to build RP prototypes. It builds prototypes rapidly with excellent
surface resolution.

      We periodically discontinue manufacturing older products. We discontinued
sales of the GenisysXs, FDM 8000 and Prodigy systems at various times in 2002.
We discontinued sales of the FDM 2000 in 2003 and expect to discontinue the FDM
3000 in 2004. However, we continue to support these products in the field.


                                       4
<PAGE>

MODELING MATERIAL

      FDM technology allows the use of a greater variety of production grade
plastic modeling materials than other RP technologies. We continue to develop
filament modeling materials that meet the customer's needs for increased speed,
strength, accuracy, surface resolution, chemical and heat resistance, and color.
These materials are processed into our patented filament form, which is then fed
into the FDM systems. Our spool-based system has proven to be a significant
advantage for our products over ultraviolet ("UV") polymer systems, because our
system allows the user to quickly change material by simply mounting the spool
and feeding the desired filament into the FDM devices. Spools weigh from one
pound to ten pounds, and the creation of a model may require from 0.1 pound to
more than one pound of filament. The spool-based system also compares favorably
with the UV polymer systems because the spool-based system allows the customer
to use it in an office environment and to purchase a single spool, as compared
to an entire vat of UV polymer, thereby reducing the customer's up-front costs.
The material delivery systems on our newer RP devices use cartridges or
canisters and feature automatic loading capabilities and transition between
multiple canisters or cartridges.

      Currently, we have eight modeling materials commercially available for use
with our FDM technology:

      o     ABS is an engineering thermoplastic material (named for its three
            initial monomers, acrylonitrile, butadiene, and styrene), which
            offers a balance of strength, toughness and thermal resistance and
            is used commercially to make products such as cell phones, computer
            cases and toys.

      o     Polycarbonate ("PC") is an engineering thermoplastic material, which
            is used commercially for demanding applications in a number of
            industries; PC offers superior impact strength coupled with
            resistance to heat and corrosive agents.

      o     Polyphenylsufone ("PPSF") is a specialty thermoplastic material,
            which offers excellent mechanical properties while being subjected
            to demanding thermal and chemical environments. PPSF is used to
            prototype parts for numerous industries, including automotive, fluid
            and chemical handling, aerospace, and medical sterilization.

      o     ABSi is a higher grade ABS that is translucent, which features
            greater impact strength than ABS. It can also be used in medical
            applications, including gama-ray sterilization.

      o     A proprietary water-soluble material is used for support during the
            build process, which is later dissolved from the finished prototype
            in products that employ our WaterWorks system.

      o     Other proprietary release materials are used for support and removed
            from the final model.

      o     An investment casting wax is used to make molds.

      o     PC-ISO, a derivative of PC that is translucent, expands the usage of
            polycarbonate models and prototypes in various medical applications.

      Each material has specific characteristics that make it appropriate for
various applications. The ability to use different materials allows the user to
match the material to the end use application of the prototype, whether it is a
pattern for tooling, a concept model, or a functional prototype. ABS is also
offered in numerous colors, including black, red, blue, yellow and green. We
offer a program to create custom colors for unique customer needs.

      The modeling filament used in our material delivery systems is a
consumable product that provides us additional recurring revenue.

OPERATING SOFTWARE

      In addition to the prototyping machines and materials, we offer two
software products that convert the three-dimensional CAD databases into the
appropriate two-dimensional data formats for our family of prototyping machines.
The software products also provide a wide range of features, including automatic
support generation, part scaling, positioning and nesting, as well as geometric
editing capabilities.


                                       5
<PAGE>


      Catalyst is our entry-level software product that enables users to build
prototype parts at the push of a button. It was introduced in 2000 and is used
on Dimension and Dimension SST.

      InSight is used on the remainder of our FDM products - Prodigy Plus,
Vantage, Titan and Maxum. InSight is our preprocessing software that increases
build speed and improves the design engineer's control and efficiency over the
entire build process. InSight was separately introduced in February 2001 as a
replacement for our QuickSlice software. It has a broad set of features that
facilitate the demanding applications ranging from a single "push button" for
automatic pre-processing to individual editing and manipulation tools for each
process step.

      We continuously improve both products to meet the demands of our
sophisticated customers. Throughput enhancements, advanced build algorithms and
features keep pace with the complex industrial geometric designs while saving
valuable operator time.

MARKETING, DISTRIBUTION AND CUSTOMERS

MARKETING AND CUSTOMERS

      The focus of our marketing begins with the identification of customer
needs. We feature a broad array of products that allow us to meet the precise
needs of engineers, designers, educators, marketers and manufacturers. Our
products range from the Dimension, priced at $24,900, to a high-performance FDM
Maxum, priced at $250,000. We currently offer seven other products between these
price points, meeting a variety of material, size and performance criteria.

<TABLE>
<CAPTION>
      We have sold systems to the following representative customers:
<S>                                             <C>                                  <C>
        o        General Motors Corporation     o        Harley Davidson             o        Toyota

        o        Intel                          o        Georgia Tech                o        Nike

        o        The Boeing Company             o        Xerox                       o        Mitsubishi Electronics

        o        University of Wisconsin -      o        InFocus                     o        Pioneer
                 Madison

        o        Callaway Golf                  o        Lockheed Martin             o        Owensboro Community &
                                                                                              Technical College

        o        Lego                           o        Lever                       o        Toro

        o        Honda                          o        Ford Motor Company          o        Graco

        o        St. Jude Medical               o        NASA                        o        Medtronic-Sofamar Danek
</TABLE>

      We have also sold systems to service bureaus, universities and
distributors in the United States and abroad. We sell complete RP and 3D
printing systems as well as supplies and services.

      No customer accounted for more than 10% of sales in 2003, 2002, or 2001.


                                       6
<PAGE>

      We use a variety of tactical marketing methods to reach potential
customers:

<TABLE>
<CAPTION>
<S>                                              <C>
      o        Web-based marketing               o        Advertisements

      o        Trade magazine articles           o        Direct mailings

      o        Brochures                         o        Trade show demonstrations

      o        Telemarketing programs            o        Web sites

      o        Videos                            o        Broadcast e-mail

      o        Press releases                    o        Webinars
</TABLE>


      In addition, we have developed domestic and international on-site
demonstration capabilities.

FDM SALES ORGANIZATION

      In early 2003, we consolidated our FDM sales organization by structuring
sales, service, and marketing into one group. The focus of this new organization
is on our high-performance RP systems that feature engineering modeling
materials, high quality surface finish, high accuracy and feature detail, and
excellent throughput. This group markets, sells and services our Maxum, Titan,
Vantage, Eden333 and Prodigy Plus systems.

      The FDM sales organization operates worldwide. In 2003, we increased the
efficiency of our dedicated direct sales force in North America by reducing the
number of regions from three to two. Both sales management and support were
consolidated. Regional sales and service offices continue to be located in
Southfield, Michigan and Ontario, California. We further consolidated our North
American territory in 2004 by creating a single region managed by a National
Sales Manager. This organization will also be responsible for the sale,
installation and service of the Eden333 System under our exclusive distribution
agreement with Object Geometries Ltd.

      Internationally, our third-party distributors continue to sell and service
our FDM products. In 2003, new distributor relationships were established in
Taiwan, China, and Latin America. Sales management and technical support were
increased to support the growth of our international business. International
sales and service centers continue to be located in Frankfurt, Germany, and
Bangalore, India.

      We have continued to expand our FDM paid parts business by operating a
dedicated FDM system center at our corporate headquarters. An essential
objective of this operation is to increase the number of high quality FDM parts
in the marketplace, which we believe will support the expansion of our system
sales. Various distribution agreements have been established to accomplish the
goals of this business.

      In 2004, we expect a continued increased emphasis on the marketing of FDM
technology through an integrated sales and marketing program. Our new FDM sales
organization will roll out marketing programs throughout 2004, with the
expectation that we will create a solid base for expanding our FDM business in
the future.

3D PRINTING SALES ORGANIZATION

      In conjunction with the consolidation of our FDM sales organization, we
also consolidated our 3D printing sales organization in 2003. A worldwide
Director of Sales manages three channel managers in North America as well as our
international regional managers for sales of our 3D printers.

      We use a worldwide reseller network to market, sell, and service our 3D
printers. Many of our reseller outlets have Dimension and Dimension SST systems
that are available for tradeshows, product demonstration, and other promotional
activities. As of early 2004, we had approximately 140 reseller locations
worldwide. Most resellers enjoy a long-term presence in their respective
territories. In addition to the Dimension, most resellers sell and service a 3D
solid CAD software package. Most of our North American territories contain a
reseller devoted to commercial accounts as well as a different reseller devoted
to the education market.


                                       7
<PAGE>

      Dimension can be found at many leading companies. We estimate that 3D
printers represented over 50% of all RP systems sold in 2003, and that Dimension
accounted for about 60% of all 3D printer systems shipped in 2003.

CUSTOMER SUPPORT

      Our Customer Support department provides on-site system installation and
maintenance services and remote technical support to users of our products. We
offer services on a time and material basis as well as through a number of
post-warranty maintenance contracts with varying levels of support and pricing.
Our help desk provides technical support via phone, fax, and e-mail to
international customers, distributors, and resellers, and our field service
personnel. We supply a toll-free telephone number that our domestic customers
can utilize to request technical assistance, schedule service visits, order
parts and supplies, or directly contact a manager within the Customer Support
department.

      We employ a field service organization that performs system installation,
basic operation and maintenance training, and a full range of maintenance and
repair services at customer sites. Field representatives have been trained and
certified to service all of our products. Representatives are strategically
located in regional offices across North America and are equipped with cellular
phones and laptop computers. They have remote access to a customer service
database containing service history and technical documentation to aid in
troubleshooting and repairing systems.

      Customer Support is represented on all cross-functional product
development teams within Stratasys to ensure that products are designed for
serviceability and to provide our internal design and engineering departments
with feedback on field issues. Failure analysis, corrective action, and
continuation engineering efforts are driven by data collected in the field.
Ongoing customer support initiatives include development of advanced diagnostic
and troubleshooting techniques and comprehensive preventative maintenance
programs, an expanded training and certification program for technical
personnel, and improved communication between the field and the factory.

WARRANTY AND SERVICE

      We provide a 90-day warranty on our commercial systems sold domestically
and a one-year warranty on domestic educational sales and systems sold
internationally. In addition, we offer annual service and maintenance contracts
for our systems. The service contracts include updates of our software programs.
Annual service contracts for our systems are priced from $3,000 to $36,000.

MANUFACTURING

      Our manufacturing process consists of the assembly of purchased
components. We obtain all parts used in the manufacturing process either from
distributors of standard electrical or mechanical parts or from custom
fabricators of our proprietary designs. Our suppliers are measured by on-time
performance and quality. We currently operate on a build-to-forecast basis.

We purchase major component parts for our FDM and 3D printing equipment from
various outside suppliers, subcontractors and other sources and assemble them at
our Minnesota facility. Our production floor has been organized using
demand-flow techniques ("DFT") in order to maximize efficiency and quality.
Using DFT, our production lines are balanced and as capacity constraints arise,
we can avoid the requirements of relaying out our production floor.
Computer-based Material Requirements Planning ("MRP") is used for reordering to
insure on-time delivery of forecasted parts. All operators and assemblers are
certified and trained on up-to-date assembly and test procedures. At the
completion of assembly, we perform a complete power up and final quality tests
to ensure the quality of our products before shipment to customers. The complete
final quality tests must be run error free before the system can be cleared for
shipment. We maintain a history folder on all products that show revision level
configuration and a complete history during the manufacturing and test process.
All issues on the system during the manufacturing process are logged and tracked
and used to make continuous process improvements of our production processes.
Other manufacturing strengths that are incorporated into our new designs are the
commonality of designs in our different products and the Design For
Manufacturability and Assembly (DFMA) principles.


                                       8
<PAGE>

      We maintain an inventory of most of our necessary supplies, which
facilitates the assembly of products required for production. While most
components are available from multiple suppliers, certain components used in our
systems are only available from single or limited sources. Should our present
sole/single source suppliers become inadequate, we would be required to spend a
significant amount of time and money researching alternate sources. We consider
these suppliers very reliable. Although we believe we maintain adequate
inventories of vendor-specific materials, the loss of a supplier of such
vendor-specific materials or compounds could result in the delay in the
manufacture and delivery of those materials and compounds. The delay could
require us to find an alternate source, which would require us to re-qualify the
product supplied by one or more new vendors. We consider our relationships with
our suppliers to be good.

RESEARCH, DEVELOPMENT AND ENGINEERING

      We believe that ongoing research, development and engineering efforts are
essential to our continued success. Accordingly, our engineering development
efforts will continue to focus on improvements to the FDM technology and
development of new modeling processes, materials, software, user applications
and products. We have devoted significant time and resources to the development
of a universally compatible and user-friendly software system. We continue to
standardize on product platforms, leveraging each new design so that it will
result in multiple product offerings that are developed faster and at reduced
expense. The FDM Vantage, Prodigy Plus, and Dimension SST products as well as
the Catalyst and InSight software products are examples of this successful
strategic initiative. For the years ended December 31, 2003, 2002 and 2001, our
research, development and engineering expenses were approximately $5,047,000,
$4,688,000 and $4,915,000, respectively.

      Our filament development and production operation is located at our
facility in Eden Prairie, MN. We regard the filament formulation and
manufacturing process as a trade secret and hold patent claims on filament usage
in our products.

INTELLECTUAL PROPERTY

      We consider our proprietary technology to be material to the development,
manufacture, and sale of our products and seek to protect our technology through
a combination of patents and confidentiality agreements with our employees and
others. Scott Crump, our President and CEO, was granted the initial patents that
cover many claims relating to various aspects of our products, FDM technology
and the associated modeling process. The term of one patent lasts until June 9,
2009, and the term of the other lasts until August 23, 2011. The patents have
been assigned to us. In addition, other employees have assigned us patents and
patent applications for other rapid prototyping processes and apparatuses
associated with the FDM process. As part of our purchase of rapid prototyping
technology assets from IBM, we were also assigned the rights and title to three
patents developed by IBM, which cover the Genisys system and which we believe
will further augment several of our other product lines. We recorded these
patents domestically and are 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. In total, we currently own 114 U.S. and international patents
and patent applications. Other foreign patent applications have also been filed,
including the patent applications assigned to us by IBM.


                                       9
<PAGE>

      Our registered trademarks include:
<TABLE>
<CAPTION>
<S>                                  <C>                                 <C>
      o        Stratasys, Inc.       o        3D Visualizer              o        FDC

      o        3D Modeler            o        FDM                        o        BMD

      o        QuickSlice            o        AutoGen                    o        FDM Quantum

      o        3D Plotter            o        FDMM                       o        Genisys
</TABLE>


      Other trademarks include:
<TABLE>
<CAPTION>
<S>                                  <C>                                <C>
      o        FDM Maxum             o        FDM Titan                 o        Dimension

      o        BASS                  o        3D Printer                o        BuildFDM

      o        Catalyst              o        Prodigy                   o        FDM Vantage

      o        InSight               o        WaterWorks                o        Dimension SST

      o        Prodigy Plus          o        SupportWorks
</TABLE>


      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 also been
filed in Japan and the European Community.

      We have also registered the following Internet domain names:

      o        prototype.com                        o        webmodeling.com

      o        webprototypes.com                    o        3D-fax.com

      o        3DPrinter.com                        o        Stratasys.com

      o        Dimensionprinting.com


BACKLOG

      Our total backlog of system orders at December 31, 2003 was approximately
$4,500,000, as compared with approximately $3,200,000 at December 31, 2002. We
estimate that most of our backlog will ship in the first half of 2004.


                                       10
<PAGE>


COMPETITION

      We compete in a marketplace that is still dominated by conventional
methods of model-making and prototype development. Machinists and engineers
working from blueprints or CAD files and using machining or manual methods
generally perform the prototype development and fabrication. We believe that
there is currently no other commercial producer of 3D modeling devices that uses
a single-step, non-toxic technology similar to our FDM technology. Most of the
3D printing and other RP systems manufactured by our competitors involve
additional post-processing steps, such as curing the part after construction of
the model or prototype. Our FDM technology does not rely on the laser or light
technology used by other commercial manufacturers in the RP industry.

         Our competitors employ a number of different technologies in their RP
devices. 3D Systems, D-MEC, Mitsui and Teijin Seiki Co. use stereolithography in
their products. 3D Systems introduced the first rapid prototyping product. We
believe that 3D Systems has accounted for approximately 28% of RP units sold to
date. 3D Systems and EOS GmbH produce machines that use selective laser
sintering ("SLS") to harden powdered material. Z Corp. uses inkjet technology to
sinter powdered materials. Sanders Prototype, Inc., Solidscape, 3D Systems and
Object Geometries have developed prototyping systems that use inkjet technology
to deposit wax material layer by layer. A smoothing or milling process is
required between each deposited layer to maintain accuracy in these processes.
Perfactory utilizes a photopolymer mask and a light process to build models.
Solidimension Ltd. uses plastic sheet lamination that involves adhesives and
multiple sheets of polyvinyl chloride (PVC) to build models. We believe that
our FDM technology has important advantages over our competitors' products.
These advantages include:

      o     the ability to be used in an office environment

      o     the availability of multiple production-grade modeling materials

      o     a one-step modeling process

      o     low acquisition price

      o     ease of use

      o     automated support removal

      Certain of our competitors have greater financial and marketing resources
than we have. We believe that in both 2002 and 2003 we shipped more units than
any other company in the RP industry, and that we were the second largest in
terms of revenue. Based on data and estimates presented in the 2003 Wohler's
Report, we estimate that we recorded approximately 40% of total units shipped in
the industry in 2003.

EMPLOYEES

      As of March 6, 2004, we had 225 full-time employees and four
subcontractors or temporary employees. While we have 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 we have not experienced a work stoppage. We believe
our employee relations are good.

GOVERNMENTAL REGULATION

      We are subject to various local, state and federal laws, regulations and
agencies that affect businesses generally. These include:

      o     regulations promulgated by federal and state environmental and
            health agencies

      o     the federal Occupational Safety and Health Administration

      o     laws pertaining to the hiring, treatment, safety and discharge of
            employees


                                       11
<PAGE>

AVAILABLE INFORMATION

      We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file at the SEC's public reference room at Room 1024, 450 Fifth
Street, NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
information on the public reference room. The SEC maintains a website that
contains annual, quarterly and current reports, proxy statements and other
information that issuers (including Stratasys) file electronically with the SEC.
The SEC's website is www.sec.gov.

      Our website is www.stratasys.com. We make available free of charge through
our Internet site, via a link to the SEC's website at www.sec.gov, our annual
reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form
8-K; Forms 3, 4 and 5 filed on behalf of our directors and executive officers;
and any amendments to those reports filed or furnished pursuant to the
Securities Exchange Act of 1934 as soon as reasonably practicable after such
material is electronically filed with, or furnished to, the SEC.

      We make available on www.stratasys.com our most recent annual report on
Form 10-K, our quarterly reports on Form 10-Q for the current fiscal year and
our most recent proxy statement, although in some cases these documents are not
available on our site as soon as they are available on the SEC's site. You will
need to have on your computer the Adobe Acrobat Reader software to view these
documents, which are in PDF format. If you do not have Adobe Acrobat, a link to
Adobe's Internet site, from which you can download the software, is provided.
The information on our website is not incorporated by reference into this
report.

FINANCIAL INFORMATION ABOUT OPERATIONS IN THE UNITED STATES AND OTHER COUNTRIES

      The information required by this item is incorporated by reference to our
Financial Statements included elsewhere in this report. (See Part IV, Item 15,
Note 13.)

ITEM 2. PROPERTIES.

      Our executive offices and production facilities presently comprise
approximately 89,856 square feet in two adjacent buildings in Eden Prairie,
Minnesota, near Minneapolis. We occupy a 27,756 square foot facility under a
lease that expires on July 31, 2007. Current monthly base rent on this facility
is $16,261, which will decrease in August 2004 to $13,375 per month. This
facility is used for R&D, administrative, marketing, and sales activities.

      On August 1, 2001, we purchased our Eden Prairie manufacturing facility
and land for approximately $2,990,000. We had previously leased this facility
since October 1996, and prior to 2002 had subleased approximately 25% of this
facility. The facility consists of 62,100 square feet, and is used for machine
assembly, filament production, inventory storage, operations, sales support, and
administration. The facility was subject to a mortgage agreement with a bank
that provided a loan of $2,287,500. Monthly payments on this loan were $18,396,
and the loan was collateralized by the property. In October 2003, we paid off
the mortgage.

      In March 2004, we entered into an agreement to purchase an additional
40,00 square feet manufacturing facility for approximately $1,230,000. The
facility is located near our current manufacturing facility in Eden Prairie,
Minnesota, and will be used for filament manufacturing and paid parts.

      We opened two regional sales offices in 1997. We occupy 2,889 square feet
of space in Southfield, Michigan, a suburb of Detroit. We renewed this lease in
June 2001 for a three-year term that expires on June 14, 2004. Base monthly rent
under this lease is $5,176, which increased to $5,297 per month for a one-year
period commencing in June 2003. We also occupy 2,504 square feet of space in
Ontario, California. We renewed this lease on September 1, 2002, for a two year
period expiring on August 31, 2004. Monthly base rent on this facility was
$3,405 through August 2003, and increased to $3,505 per month for the remainder
of the lease. We are also responsible for real estate taxes, insurance,
utilities, trash removal, and maintenance expenses at these facilities.


                                       12
<PAGE>

      In November 1997, our German subsidiary entered into a lease to occupy
4,360 square feet of space in Frankfurt, Germany. We renewed the lease in
November 2002 for a period of three years, with base monthly rent of
approximately (euro)5,700.00.

ITEM 3. LEGAL PROCEEDINGS.

      We are not a party to any pending legal or administrative proceeding, and
our property is not subject to any such proceeding, other than actions arising
in the ordinary course of our business, which we believe are not material.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS.

      No matter was submitted to a vote of stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 2003.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

      Our common stock is quoted on the National Association of Securities
Dealers, Inc. Automated Quotation System National Market ("Nasdaq") under the
symbol SSYS and is traded on The Pacific Exchange Inc. under the symbol SAS.

      The following table sets forth the high and low closing sale prices of our
common stock for each quarter from January 1, 2002 through the fiscal year ended
December 31, 2003 reported on the Nasdaq National Market system, as adjusted,
where appropriate, to reflect the 3-for-2 stock split in the form of a stock
dividend which became effective in December 2003.


                                                           HIGH            LOW
                                                         ---------       -------
                                                         CLOSING SALE PRICES ($)
                                                         -----------------------
Fiscal Year Ended December 31, 2003

January 1, 2003 - March 31, 2003                            8.894           5.62

April 1, 2003 - June 30, 2003                               24.44          8.527

July 1, 2003 - September 30, 2003                          36.533         19.787

October 1, 2003 - December 31, 2003                        38.733          21.50


Fiscal Year Ended December 31, 2002

January 1, 2002 - March 31, 2002                            6.787           4.02

April 1, 2002 - June 30, 2002                                6.06           3.82

July 1, 2002 - September 30, 2002                            5.24           3.00

October 1, 2002 - December 31, 2002                          6.48          2.633


      There were approximately 100 stockholders of record of our common stock as
of March 8, 2004.


                                       13
<PAGE>

DIVIDENDS

      We have not paid or declared any cash dividends to date and do not
anticipate paying any in the foreseeable future. We intend to retain earnings,
if any, to support the growth of our business.

SHARES ISSUABLE UNDER EQUITY COMPENSATION PLANS

      The following table summarizes information with respect to options under
our equity compensation plans as of December 31, 2003:

<TABLE>
<CAPTION>
                                                                                           Number of securities
                                                                                          remaining available for
                               Number of securities to be   Weighted-average exercise      future issuance under
                                 issued upon exercise of       price of outstanding      equity compensation plans
                                  outstanding options,        options, warrants and        (excluding securities
                                   warrants and rights                rights             reflected in column (a))
                                           (a)                         (b)                         (c)
                               --------------------------   -------------------------      ---------------------
<S>                            <C>                          <C>                          <C>
Equity compensation plans
approved by security holders             882,355                      $12.44                      938,108

Equity compensation plans
not approved by security
holders                                  234,000                      $23.65                        --
                               --------------------------   -------------------------      ---------------------

Total                                   1,116,355                     $14.79                      938,108
</TABLE>

      In separate arrangements, we granted warrants to purchase 225,000 shares
to investors in an August 2003 private placement and a warrant to purchase 9,000
shares to an engineering consultant.


                                       14
<PAGE>


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

      The selected consolidated financial data as of and for the five-year
period ended December 31, 2003, should be read in conjunction with the
Consolidated Financial Statements and related Notes for the year ended December
31, 2003, and the Management's Discussion and Analysis of Financial Condition
and Results of Operations.

<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                                   ----------------------------------------------------------------
                                                               (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                     2003          2002           2001          2000          1999
                                                   -------       -------        -------       -------       -------
STATEMENT OF OPERATIONS DATA:
<S>                                                <C>           <C>            <C>           <C>           <C>
Sales.......................................       $50,890       $39,808        $37,572       $35,611       $37,587

Gross Profit................................        32,782        24,366         23,001        21,948        24,675

Selling, general and administrative
expenses....................................        18,993        16,065         14,598        15,233        15,611

Research and development....................         5,047         4,688          4,915         6,367         6,583

Operating income ...........................         8,742         3,613          3,488           349         2,481

Net income..................................         6,156         3,111          2,513           988         2,144

Net income per basic share..................          $.68         $0.39          $0.31         $0.12         $0.25

Weighted average basic shares
outstanding.................................         9,051         8,005          8,193         8,291         8,664

Net income (loss) per diluted share.........          $.64         $0.37          $0.31         $0.11         $0.25

Weighted average diluted shares outstanding.         9,679         8,392          8,239         8,526         8,669

BALANCE SHEET DATA

Working Capital.............................       $60,856       $23,741        $21,594       $20,014       $19,567

Total Assets................................        84,100        43,600         41,951        37,582        37,113

Long term debt (less current position)......           -0-         2,157          2,216           130           318

Stockholders' equity........................        73,896        32,766         31,303        29,226        28,783
</TABLE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

      We develop, manufacture, and market a family of rapid prototyping ("RP")
devices, which includes our 3D printing systems, 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
2003, our sales grew by almost 28% on a 50.5% increase of units shipped. We
successfully implemented our strategy to address the needs of both the
high-performance and 3D printing ends of the market. Our growth was derived from
a number of industries, including consumer products, electronics, general
manufacturing, medical, automotive, and aerospace. Educational institutions,
government agencies, and service bureaus were also significant markets for us.


                                       15
<PAGE>


      Our strategy in 2003 was to expand our position in the 3D printing market
through increased sales of Dimension, our low-cost 3D printer. In 2003, the unit
growth rate of Dimension was 68%, which contributed to a 67% increase in
revenues from that product as compared with 2002. We believe that we shipped
more 3D printers than other company in the world in 2003. Our strategy also
included the expansion of our position in the RP market through the growth of
our high performance systems, represented principally by our Titan, Maxum,
Vantage, and Prodigy Plus systems. In 2003, unit and revenue growth of these
products amounted to 19.3% and 9.1%, respectively. Total net unit shipments in
2003 amounted to 691 systems, an increase of 50.5% compared with the 459 net
units shipped in 2002. We believe we shipped more total RP systems than any
other company in the world in 2003.

      As our installed base has increased, we have derived an increasing amount
of revenue from the sales of consumables, maintenance contracts, and other
services. These represent recurring revenue for us. In 2003, total non-system
revenue increased by 31.3%, due principally to growth in our consumable and paid
parts businesses.

      Our 2003 strategy also called for us to slow the growth of our operating
expenses, with the intent to improve our operating margins as compared with
those recorded in 2002. While our total revenues increased by 27.8% to
$50,889,861 from $39,807,889 in 2002, our operating expenses grew by only 15.8%,
or $3,286,850, as compared with 2002. This had the effect of increasing
operating margins by almost 142% over those recorded in 2002. We will continue
to focus on our operating expenses in 2004, with the intent to improve our
operating profits beyond those reported in 2003. We cannot, however, ensure that
we will be successful.

      In 2003, our research and development ("R&D") group finished development
of a new RP system, a new modeling material, and new throughput and software
enhancements. We introduced and began shipping FDM Vantage in July 2003. In May
2003, we introduced a specialty thermoplastic material, polyphenylsulfone
("PPSF"), for Titan. In December, we announced significant throughput
enhancements for Titan. And in February 2004, we introduced Dimension SST at a
price of $34,900 and further reduced the price of our Dimension from $29,900 to
$24,900. At $24,900, Dimension is among the least expensive 3D printers in the
market. The R&D group and a cross-functional team of other disciplines were
responsible for also reducing the material and labor costs of the Dimension and
Dimension SST in 2003, with further cost reductions on this platform expected in
the later part of 2004. While R&D expense in 2003 increased by $359,534, or
7.7%, to $5,047,207, it declined to 9.9% of sales from 11.8% in 2002.

      Primarily due to system sales of Dimension and Titan, coupled with higher
consumable revenue, net revenue in the fourth quarter of 2003 increased to
$15,239,786 from $11,271,417 in the comparable 2002 period. The revenue we
recognized in the fourth quarter was a record for us. Net unit shipments in the
fourth quarter of 2003 increased to 226 systems from 141 systems in the fourth
quarter of 2002, also a record. Total bookings in the quarter exceeded our plan,
and our backlog increased to approximately $4,500,000 as compared with
approximately $3,200,000 at the end of 2002. The growth in backlog was largely
due to the strong demand for Dimension systems, as well as the result of our
receipt of a $1,500,000 order that was received in late December. This was the
largest order in our history.

      Our 2003 growth strategy was accomplished without negatively impacting our
balance sheet. In fact, we ended 2003 with no debt, a cash balance of
approximately $44,500,000, and a current ratio of 7:1. In 2003, our cash flow
from operations amounted to almost $4,500,000, after achieving cash flow from
operations of almost $7,000,0000 in 2002. While our cash position has been
bolstered by successful operations, a significant portion of the increase in our
cash position was due to a private financing that raised $29,438,131, net of
expenses, through the issuance of common stock and warrants in August 2003. In
short, we have a very strong balance sheet and cash position to fund our 2004
growth strategy.

      Our strategy in 2004 will be to continue to expand our penetration of the
3D printing market with our legacy Dimension and new Dimension SST systems.
Additionally, our high productivity business, principally represented by Titan
and Vantage systems, should also contribute to our growth, albeit at a lower
rate. Finally, recurring revenue, driven by our growing installed base, should
be poised for significant growth opportunities.


                                       16
<PAGE>

      We anticipate that our expenses will increase in 2004 over the amounts
reported in 2003, but that our revenue growth will exceed that of the growth of
our expenses. This should allow for increased operating profits in 2004 as
compared with 2003. We believe that the 3D printing market represents a
significant growth area and that Dimension and Dimension SST will continue to
have a significant positive impact on our 2004 results and beyond. However, we
remain fully committed to the growth of our historic core business, which is
currently served by our Titan, Vantage, Prodigy Plus, and Maxum systems. We also
believe that the service, consumable, and maintenance revenues derived from our
installed base of systems will improve over the results attained in 2003. Our
current and future growth is largely dependent upon our ability to penetrate new
markets, and develop and market new rapid prototyping and 3D printing systems,
materials, applications, and services that meet the needs of our current and
prospective customers. Our ability to implement our strategy for 2004 is subject
to numerous uncertainties, many of which are described in this Management's
Discussion and Analysis of Financial Condition and Results of Operations and in
the section below captioned "Forward Looking Statements and Factors That May
Affect Future Results of Operations." We cannot ensure that our efforts will be
successful.

      Our expense levels are based in part on our expectations of future
revenues. While we have adjusted, and will continue to adjust, our expense
levels based on both actual and anticipated revenues, fluctuations in revenues
in a particular period could adversely impact our operating results. Whereas our
backlog as of December 31, 2003 was significantly larger than our backlog as of
December 31, 2002, it would not be sufficient to meet our budgeted revenue
targets should new system orders in 2004 decline. These and other factors may
lead to reduced operating and gross profits as compared with the results
reported in 2003.

      We believe that most of the manufacturers of RP systems, including 3D
printers, in the RP industry grew by between 5-30% in 2003. However, the largest
company in the industry reported declining revenue in 2003. This should have the
effect of reducing total industry growth to between 0-20% in 2003. We believe
that 3D printers accounted for more than 40% of the all RP systems shipped in
2003. Furthermore, we believe that 3D printing is the fastest growing component
of the RP market, and that our Dimension and Dimension SST systems, based upon
price and performance, are positioned to capture an increased share of this
market. We believe that there is a long-term trend toward lower-priced 3D
printing systems capable of producing functional prototypes. This pricing trend
should lead to growth as companies continue to address in-house rapid
prototyping and 3D printing needs. Certain market segments in the industry have
not demonstrated significant pricing sensitivity. These segments are more
interested in modeling envelope size, modeling material, throughput, part
quality, and part durability. Rapid manufacturing and rapid tooling, markets
that value the above-mentioned attributes, should allow for growth to continue
for higher priced RP systems such as our Maxum, Titan, and Vantage systems that
address these needs.

RESULTS OF OPERATIONS

TWELVE MONTHS ENDED DECEMBER 31, 2003 COMPARED WITH TWELVE MONTHS ENDED DECEMBER
31, 2002

      The following table sets forth certain statement of operations data as a
percentage of net sales for the periods indicated. All items are included in or
derived from our statement of operations.


                                                           For the twelve months
                                                             ended December 31,

                                                             2003          2002
                                                             ----          ----

Net sales                                                   100.0%        100.0%

Cost of sales                                               35.6 %         38.8%

Gross margin                                                64.4 %         61.2%

Selling, general, and administrative expenses                37.3%         40.3%

Research & development expense                                9.9%         11.8%

Operating income                                             17.2%          9.1%

Other income                                                   .8%          0.7%

Income before taxes                                          18.0%          9.8%

Income taxes                                                  5.9%          2.0%

Net income                                                   12.1%          7.8%


                                       17
<PAGE>


NET SALES

      Net sales for the twelve months ended December 31, 2003, were $50,889,861,
compared with net sales of $39,807,889 for the twelve months ended December 31,
2002. This represents an increase of $11,081,972, or 27.8%. Dimension, Prodigy
Plus, and Titan sales were very strong in 2003, and recorded unit growth rates
of 68%, 62%, and 24%, respectively. We also commenced multiple shipments of the
Eden333 system, a product that we distribute in North America for Objet
Geometries. Revenues derived from our older Benchtop platform, however, declined
in 2003 as compared with 2002, and we phased out systems based on that platform
in 2003. Revenues from consumables and services other than maintenance also
increased significantly in the twelve months ended December 31, 2003 as compared
with the same 2002 period. Consumable revenue was enhanced by the larger
installed base of systems.

      North American sales, which include Canada and Mexico, accounted for
approximately 59% of total revenue in the twelve months ended December 31, 2003,
as compared with approximately 54% in the twelve months ended December 31, 2002.
Sales of systems were considerably higher in the North American region in 2003,
unlike 2002 when international system sales were higher. Total North American
sales, which include systems, services, and consumables, grew by almost 41% as
compared with international sales growth of approximately 13%. Our coastal
region recorded the highest revenues in 2003, while the central region,
dominated by the automotive industry, continued to be weak. Internationally, our
Asia Pacific region, which comprises Japan, China, the Far East and India,
recorded revenues that amounted to approximately 21% of total sales. Europe
accounted for approximately 19% of total revenue for the twelve months ended
December 31, 2003, and displayed weakness for much of the year. We believe that
sales into our Asia Pacific and North American regions will remain strong
throughout 2004, and that Europe will improve only slightly. However, declining
economic conditions in any of these regions could adversely impact our future
sales and profitability.

GROSS PROFIT

      Gross profit improved to $32,782,281, or 64.4% of sales, in the twelve
months ended December 31, 2003, compared with $24,366,441, or 61.2% of sales, in
the comparable period of 2002. This represents an increase of $8,415,840, or
34.5%. Gross profit increased due to higher revenues, material and labor cost
reductions to both Dimension and Prodigy Plus systems, control over our fixed
overhead costs, and a favorable mix of higher margin Titan and Vantage products
and increased consumable revenue. Gross margins were negatively impacted by the
high percentage of Dimension systems sold, new sales of the Eden 333, and
write-offs of inventory principally related to the discontinuation of older
products such as our Benchtops and FDM 8000 systems. These write-offs and
inventory adjustments increased year-over-year by approximately $480,000, and
occurred throughout the year. However, the fourth quarter was impacted by a
slightly higher amount as we have refined our methodology to determine future
inventory needs for discontinued products that are under maintenance contracts.
For further information, see the section below captioned "Critical Accounting
Policies".

OPERATING EXPENSES

      SG&A expenses increased to $18,992,636 for the twelve months ended
December 31, 2003, from $16,065,320 for the comparable period of 2002. This
represents an increase of $2,927,316, or 18.2%. We incurred significant expenses
in 2003 for due diligence and promotional activities related to the Objet
distribution arrangement. These expenses were mostly incurred in the second half
of the year. Our expenses for Dimension channel development were also higher in
2003 as compared with 2002. Variable commissions, incentives, and travel
expenses were higher in the 2003 period as a result of increased revenues. Our
investor relations expense was also significantly higher in 2003 than in 2002.

      R&D expenses increased to $5,047,207 for the twelve months ended December
31, 2003 from $4,687,673 for the twelve months ended December 31, 2002. This
amounted to an increase of $359,534, or 7.7%. On higher revenues, R&D expenses
decreased as a percentage of sales to 9.9% in the twelve months ended December
31, 2003, from 11.8% in the 2002 period. Higher contract labor and professional
fees accounted for much of the increase, as we outsourced certain functions.
While we remain committed to maintaining R&D to design new products and
materials, to reduce costs on existing products, and to improve the quality and
reliability of all of our platforms, we have had an on-going objective to
control spending levels. As such, R&D expenses in 2004 should increase slightly
from the levels of 2003, which should have the effect of reducing R&D expenses
as a percentage of revenue.


                                       18
<PAGE>

OPERATING INCOME

      For the reasons cited above, our operating income for the twelve months
ended December 31, 2003 amounted to $8,742,438, or 17.2% of sales, compared with
operating income of $3,613,448, or 9.1% of sales, for the twelve months ended
December 31, 2002. This represents an increase of $5,128,990, or almost 142%.

OTHER INCOME

      Other income netted to $402,375 in the twelve months ended December 31,
2003 compared with other income of $288,436 in the comparable 2002 period.
Interest income increased to $231,040 in the current twelve-month period,
compared with $146,419 in the twelve-month period of 2002. The increase in
interest income was primarily due to significantly higher average cash balances,
but negatively impacted by declining interest rates. Interest expense, primarily
due to the mortgage on our manufacturing facility, declined to $123,924 in the
twelve months ended December 31, 2003 from $178,431 in the same period of 2002.
We paid off the mortgage in late 2003. In the twelve months ended December 31,
2003, we recognized income from foreign currency transactions related to the
euro of 342,877, which compared with income on foreign currency transactions
related to the euro of $320,448 in the same period of 2002.

INCOME TAXES

      Income tax expense amounted to $2,989,299, or 5.9% of sales, in the twelve
months ended December 31, 2003, compared with $791,102, or 2% of sales, for the
twelve months ended December 31, 2002. The effective tax rate for 2003, which
benefited from the utilization of R&D tax credits, amounted to 32.7% compared
with an effective tax rate of 20.3% in 2002. The fourth quarter of 2003 was
particularly impacted by an adjustment to our effective tax rate, with the
adjustment amounting to approximately $500,000. This fourth quarter adjustment
was made because our operating income for the year was significantly higher than
projected in the first three quarters; the adjustment of the tax benefit of the
foreign sales corporation exclusion, R&D tax benefits and credits being less
than anticipated; and the elimination of the estimated tax benefit resulting
from disqualifying dispositions of shares acquired through the exercise of stock
options, which should have been included in additional paid in capital. We
believe that our effective tax rate should range between 32% and 34% in 2004.

NET INCOME

      For the reasons cited above, our net income for the twelve months ended
December 31, 2003, amounted to $6,155,514, or 12.1% of sales, compared with net
income of $3,110,782, or 7.8% of sales, in the comparable 2002 period. This
resulted in earnings per diluted common share of $.64 in the twelve months ended
December 31, 2003, compared with earnings per diluted common share of $.37 for
the comparable period ended December 31, 2002. In 2003, the number of diluted
weighted average shares outstanding increased to 9,679,435, due mostly to a 3:2
stock split that was effective in December 2003. The corresponding earnings per
share and weighted average shares outstanding have been adjusted in the 2003 and
2002 periods to account for this.


                                       19
<PAGE>

TWELVE MONTHS ENDED DECEMBER 31, 2002 COMPARED WITH TWELVE MONTHS ENDED DECEMBER
31, 2001

      The following table sets forth certain statement of operations data as a
percentage of net sales for the periods indicated. All items are included in or
derived from our statement of operations.


                                                           For the twelve months
                                                              ended December 31,

                                                             2002          2001
                                                             ----          ----

Net sales                                                   100.0%        100.0%
Cost of sales                                               38.8 %         38.8%
Gross margin                                                61.2 %         61.2%
Selling, general, and administrative expenses                40.4%         38.9%
Research & development expense                               11.8%         13.1%
Operating income                                              9.1%          9.3%
Other income                                                   .7%          0.1%
Income before taxes                                           9.8%          9.4%
Income taxes                                                  2.0%          2.7%
Net income                                                    7.8%          6.7%



NET SALES


      Net sales for the twelve months ended December 31, 2002, were $39,807,889,
compared with net sales of $37,571,582 for the twelve months ended December 31,
2001. This represents an increase of $2,236,307, or 6.0%. Dimension and Titan
sales were very strong throughout 2002 and exceeded our internal expectations.
Whereas Titan sales exceeded 2001 levels by almost 13%, Dimension was not
commercially available for sale in 2001, so a year-over-year comparison is not
applicable. Revenues from consumables, other services, and maintenance also
increased significantly in the twelve months ended December 31, 2002 as compared
with the same 2001 period. Maintenance and consumable revenues were enhanced by
the larger installed base of systems and continued emphasis on the sale of
maintenance contracts.

      Domestic sales accounted for approximately 54% of total revenue in the
twelve months ended December 31, 2002, as compared with approximately 51% in the
twelve months ended December 31, 2001. However, sales of systems were higher
internationally (in terms of both units and revenues) than those of our domestic
sales organization. In the United States, our eastern region recorded the
highest revenues. The central region, dominated by the automotive industry, was
somewhat weak for us in 2002, and recorded revenue that was slightly under 20%
of total revenue. Internationally, our Asia Pacific region, which comprises
Japan, China, the Asia Pacific and India, recorded revenues that amounted to 23%
of total sales. Europe accounted for approximately 22% of total revenue for the
twelve months ended December 31, 2002, and did not display the weakness for us
that other manufacturing companies had reported. We believe that sales into our
Asia Pacific, European, and domestic regions will remain strong throughout 2003.
However, declining economic conditions in any of these regions could adversely
impact our future sales and profitability.

GROSS PROFIT

      Gross profit improved to $24,366,441, or 61.2% of sales, in the twelve
months ended December 31, 2002, compared with $23,000,767, or 61.2% of sales, in
the comparable period of 2001. This represents an increase of $1,365,674, or
5.9%. Gross profit increased due to higher revenues. Although gross profit as a
percentage of sales was identical in both twelve-month periods, in 2002 mix
shifts to products with lower margins, such as the Dimension, were offset by
sales of higher margin Titans, consumables, and maintenance.

OPERATING EXPENSES

      SG&A expenses increased to $16,065,320 for the twelve months ended
December 31, 2002, from $14,597,862 for the comparable period of 2001. This
represents an increase of $1,467,458, or 10.1%. Variable commissions,
incentives, and travel expenses were higher in the 2002 period as a result of
increased revenues. Marketing, promotional, and sales expenses associated with
the Dimension product launch also accounted for the increase in SG&A expenses
for the twelve months ended December 31, 2002 as compared with the twelve months
ended December 31, 2001. Additionally, bad debt expense in the 2002 period
exceeded $280,000 compared with no bad debt expense in the 2001, principally the
result of a customer's bankruptcy in early 2002 and a fourth quarter adjustment
to increase our allowance for doubtful accounts to $338,893.


                                       20
<PAGE>

      R&D expenses declined to $4,687,673 for the twelve months ended December
31, 2002 from $4,915,098 for the twelve months ended December 31, 2001. This
amounted to a decrease of $227,425, or 4.6%. On higher revenues, R&D expenses
decreased as a percentage of sales to 11.8% in the twelve months ended December
31, 2002, from 13.1% in the 2001 period. Lower depreciation and material
purchases for R&D projects accounted for much of the expense reduction in the
current twelve-month period.

      For the reasons cited above, our operating income for the twelve months
ended December 31, 2002 amounted to $3,613,448, or 9.1% of sales, compared with
operating income of $3,487,807, or 9.3% of sales, for the twelve months ended
December 31, 2001. This represents an increase of $125,641, or 3.6%.

OTHER INCOME

      Other income netted to $288,436 in the twelve months ended December 31,
2002, compared with other income of $35,250 in the comparable 2001 period.
Interest income declined to $146,419 in the current twelve-month period,
compared with $306,068 in the twelve-month period of 2001. The reduction in
interest income was primarily due to significantly lower interest rates.
Interest expense increased to $178,431 in the twelve months ended December 31,
2002 from $103,732 in the same period of 2001, primarily due to interest expense
on the mortgage of our manufacturing facility. In the twelve months ended
December 31, 2002, we recognized other income of $320,448, principally due to
income from foreign currency transactions related to the euro, which compared
with a loss on foreign currency transactions related to the euro of $167,086 in
the same period of 2001.

INCOME TAXES

      Income tax expense amounted to $791,102, of 2% of sales, in the twelve
months ended December 31, 2002, compared with $1,009,872, or 4.8% of sales, for
the twelve months ended December 31, 2001. The effective tax rate for 2002,
which benefited from R&D tax credits and permanent differences, including those
resulting from the exercise of employee stock options, amounted to 20.3%
compared with an effective tax rate of 28.3% in 2001.

NET INCOME

      For the reasons cited above, our net income for the twelve months ended
December 31, 2002, amounted to $3,110,782, or 7.8% of sales, compared with net
income of $2,513,185, or 6.7% of sales, in the comparable 2001 period. This
resulted in earnings per diluted common share of $.56 in the twelve months ended
December 31, 2002, compared with earnings per diluted common share of $.46 for
the comparable period ended December 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

      We have increased our cash and cash equivalents balances to $44,544,431 at
December 31, 2003, from $14,193,590 at December 31, 2002, and $10,211,398 at
December 31, 2001. The net cash provided by our operating activities over the
past three years has amounted to approximately $17,732,000, principally derived
from net income and working capital management.

      In 2003, net cash provided by our operating activities amounted to
$4,490,484, compared with $6,997,129 in 2002 and $6,244,376 in 2001. The
principal source of cash from our operating activities has been our net income,
as adjusted to exclude the effects of non-cash charges, and changes in working
capital, primarily inventories and accounts receivable. Our net accounts
receivable balances increased to $15,788,095 in 2003 from $10,640,451 in 2002,
principally due to significantly higher fourth quarter revenue. Additionally,
shipments in the fourth quarter of 2003 were more heavily back-ended than in the
prior year's fourth quarter. Through February 27, 2004, we have collected
approximately $11,860,000 of our outstanding account receivables. Throughout
2003, we introduced tighter controls in our credit and collections areas. Some
of our international distributors, however, have continued to carry high
balances, some of which have exceeded our normal terms. These delays in payment
have adversely impacted our days sales outstanding ("DSO"). Nevertheless, DSO's
have declined over the past three years, from 115 days in 2001 to 96 days in
2003.


                                       21
<PAGE>

      For the years ended December 31, 2001, 2002, and 2003, our inventory
balances have declined to $6,877,582, $6,537,446, and 6,423,658, respectively.
We have instituted better inventory management, but recognize that we have
opportunities to make considerably more improvement to reduce overall inventory
and improve turns. Over the three-year period, inventory turns have improved to
2.4 in 2003 from 2.0 in 2002. A significant portion of our inventory is
dedicated to fulfill our service contract and warranty obligations. As we have
introduced several new products over the last several quarters, there are many
more platforms and models to service than in the past, which increases the
requirements to maintain inventory spares. With the introduction of these new
products, older products are discontinued but certain inventory is still
required to fulfill our service contracts. Our procedures for dealing with this
inventory are more fully explained in the section below captioned "Critical
Accounting Policies".

      Investments in sales-type leases used cash of $1,286,574 in 2003 and none
in the preceding years. In mid-2003 we introduced a leasing program that was
principally designed for the Dimension product. The program successfully enabled
us to offer an attractive leasing solution to more than 40 accounts. We will
continue to offer this program, and intend to broaden it to include more
customers interested in our high-performance systems.

      Prepaid expenses used cash of $1,889,019 in 2003 as compared with $361,899
in 2002. Much of the increase was due to higher prepaid income taxes as well as
advanced payments associated with our Objet distributor agreement.

      Our investing activities used cash of $4,430,924, $1,166,723, and
$4,429,215 in the twelve months ended December 31, 2003, 2002, and 2001,
respectively. Property and equipment acquisitions totaled $2,339,561, $602,711,
and $3,928,177 in 2003, 2002, and 2001, respectively. Much of the capital
expenditures in 2003 were for equipment required by the fastest growing
components of our business, including consumable manufacturing and paid parts.
In March 2004, due to the anticipated growth requirements for these two lines of
our business, we purchased a 40,000 sq.ft. building near our current
manufacturing facility for approximately $1,230,000. We will pay for the
building with current cash balances prior to April 2004, and should incur
additional costs of approximately $300,000 to make improvements to the facility.
Over the three-year period ended December 31, 2003, our other principal capital
expenditures were for manufacturing or engineering development equipment,
tooling, and leasehold improvements, and for the acquisition of computer systems
and software applications. Payments for intangible assets, including patents and
capitalized software, amounted to $516,363, $564,012, and $501,038 for the years
ended December 31, 2003, 2002,and 2001, respectively. In 2003, we used cash to
purchase investments of approximately $1,575,000. These investments are in
certificates of deposit that are covered by FDIC insurance and that range in
maturities from 4 months to 4 years.

      Our financing activities provided cash of $30,306,097 and $1,670,346 in
the twelve months ended December 31, 2003 and 2001, respectively, and used cash
of $1,840,626 in 2002. In 2003, net proceeds from the sale of 1,000,000 shares
of our common stock provided cash of $29,438,131. In conjunction with this
transaction, we issued warrants to purchase 225,000 shares of our common stock.
The proceeds from the exercise of 478,250 stock options provided cash of
$3,086,328 in 2003. In 2002, the proceeds from the exercise of stock options
amounted to $2,085,288. We paid off the mortgage in our manufacturing facility
in 2003, which used cash of $2,218,362. In 2001 we had financed this purchase
with a mortgage that provided cash of $2,287,500. In 2002 and 2001, we used cash
of $3,742,979 and $449,439, respectively, to purchase shares on the market under
our stock buyback program.


                                       22
<PAGE>

   For 2004, we expect to use our cash as follows:

      o     for the purchase and improvement of our new manufacturing facility;

      o     for the continuation of our leasing program;

      o     for working capital purposes;

      o     for improvements and upgrades to our existing manufacturing
            facility;

      o     for new product and materials development;

      o     for sustaining engineering;

      o     for the acquisition of equipment, including production equipment,
            tooling, and computers;

      o     for the purchase of intangible assets, including patents;

      o     for increased selling and marketing activities, especially as they
            relate to the continued Dimension market and channel development as
            well as the Eden333 market development; and

      o     for acquisitions and/or strategic alliances.


While we believe that the primary source of liquidity during 2004 will be
derived from current cash balances and cash flows from operations, we have
maintained a line of credit for the lesser of $4,000,000 or a defined borrowing
base. To date, we have not borrowed against this credit facility.

      As of December 31, 2003, we had gross accounts receivable of $16,555,462,
less an allowance of $767,367 for returns and doubtful accounts. Historically,
our bad debt expense has been minimal. Certain customers, especially those that
purchased our Maxum or Titan systems, continue to carry high balances.
Additionally, at December 31, 2003, large balances were concentrated with
certain international distributors, and some of these balances exceed our
payment terms. Default by one or more of these distributors or customers could
result in a significant charge against our current reported earnings. We have
reviewed our policies that govern credit and collections, and will continue to
monitor them in light of current payment status and economic conditions. While
we can give no assurances, we believe that most, if not all, of the accounts
receivable balances will ultimately be collected. For further information, see
the section below captioned "Critical Accounting Policies."

      Our total current assets amounted to $71,059,842 at December 31, 2003, the
majority of which consisted of cash and cash equivalents, inventories and
accounts receivable. Total current liabilities amounted to $10,204,017. We have
no debt, having paid off our mortgage in 2003. We estimate that we will spend
approximately $4,000,000 in 2004 for property and equipment, which includes the
purchase of another manufacturing facility mentioned above. As of December 31,
2003, we estimate that material commitments for inventory purchases from
selected vendors for the ensuing twelve-month period ending December 31, 2004,
amounts to approximately $2,700,000. We intend to finance these purchases from
existing cash or from cash flows from operations.

INFLATION

      We believe that inflation has not had a material effect on our operations
or on our financial condition during the three most recent fiscal years.


                                       23
<PAGE>

FOREIGN CURRENCY TRANSACTIONS

      We invoice sales to certain European distributors in euros. Our reported
results are therefore subject to fluctuations based upon changes in the exchange
rates of that currency in relation to the United States dollar. In the year
ended December 31, 2003, income from foreign currency translations amounted to
approximately $342,900, whereas in the comparable 2002 period we reported income
from foreign currency translations of approximately $320,400. In the year ended
December 31, 2003, we hedged approximately (euro)1,000,000 of our accounts
receivable that were denominated in euros. The hedge resulted in a currency
translation loss of approximately $236,000 for this period. We intend to
continue to hedge some of our accounts receivable balances that are denominated
in euros throughout 2004, and will continue to monitor our exposure to currency
fluctuations. Instruments to hedge our risks may include foreign currency
forward, swap, and option contracts. These instruments will be used to
selectively manage risks, but there can be no assurances that we will be fully
protected against material foreign currency fluctuations. We expect to continue
to derive most of our revenue from regions where the transactions are
negotiated, invoiced, and paid in US dollars. Fluctuations in the currency
exchange rates in these other countries may therefore reduce the demand for our
products by increasing the price of our products in the currency of countries in
which the local currency has declined in value.

CRITICAL ACCOUNTING POLICIES

      We have prepared our financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America. This has required us to make estimates, judgments, and assumptions that
affected the amounts we reported. Note 1 of Notes to Consolidated Financial
Statements contains the significant accounting principles that we used to
prepare our consolidated financial statements.

      We have identified several critical accounting policies that required us
to make assumptions about matters that were uncertain at the time of our
estimates. Had we used different estimates and assumptions, the amounts we
recorded could have been significantly different. Additionally, if we had used
different assumptions or different conditions existed, our financial condition
or results of operations could have been materially different. The critical
accounting policies that were affected by the estimates, assumptions, and
judgments used in the preparation of our financial statements are listed below.

REVENUE RECOGNITION

      We recognize revenue when 1) persuasive evidence of a final agreement
exists, 2) delivery has occurred or services have been rendered, 3) the selling
price is fixed or determinable, and 4) collectability is reasonably assured.
Revenue from system sales is primarily recognized at time of shipment if the
shipment conforms to the terms and conditions of the purchase agreement. Revenue
from sales-type leases is recognized at the time of lessee acceptance, which
follows installation. Revenue from maintenance contracts is recognized ratably
over the term of the contract, usually one year. On certain sales that require a
one-year warranty rather than our standard 90-day warranty, a percentage of the
selling price that represents the extended warranty is deferred and recognized
ratably over the period of the extended warranty as an implied maintenance
contract. This has had the effect of deferring, as of December 31, 2003,
approximately $1,400,000 of revenue that will be recognized in future periods.

      We assess collectability as part of the revenue recognition process. We
evaluate a number of factors to assess collectability, including an evaluation
of the credit worthiness of the customer, past payment history, and current
economic conditions. If it is determined that collectability cannot be
reasonably assured, we would decline shipment, request a down payment, or defer
recognition of revenue until ultimate collectability is more determinable.

      We also record a provision for estimated product returns and allowances in
the period in which the related revenue is recorded. This provision against
current gross revenue is based principally on historical rates of sales returns,
but also factors in changes in the customer base, geographic economic
conditions, and changes in the financial conditions of our customers. If past
trends were to change, we would potentially have to increase or decrease the
amount of the provision for these returns. We have no history as to potential
returns under our lease programs. We will monitor our lease sales in the future,
and if necessary will record a provision for returns on leased systems. As of
December 31, 2003, our allowance for returns was $198,481, unchanged from the
balance as of December 31, 2002.


                                       24
<PAGE>

ALLOWANCE FOR DOUBTFUL ACCOUNTS

      While we evaluate the collectability of a sale as part of our revenue
recognition process, we must also make judgments regarding the ultimate
realization of our accounts receivable and notes receivable balances. A
considerable amount of judgment is required in assessing the realization of
these receivables, including the aging of the receivables and the
creditworthiness of each customer. We may not be able to accurately and timely
predict changes to our customer's financial condition. For example, in 2002, a
customer's unanticipated bankruptcy resulted in our recording additional bad
debt expense of approximately $200,000. In 2003, we did not experience a large
write-off, and directly wrote-off smaller balances that in the aggregate
amounted to under $95,000. If a customer's financial condition should suddenly
deteriorate, calling into question our ability to collect the receivable, our
estimates of the realization of our receivables could be adversely affected. We
might then have to record additional allowances for doubtful accounts, which
could have an adverse effect on our results of operations in the period
affected.

      Our allowance for doubtful accounts is adjusted on a quarterly basis using
two methods. First, our overall reserves are based on a percentage applied to
certain aged receivable categories that are predominately based on historical
bad debt write-off experience. Then, we make an additional evaluation of overdue
customer accounts, for which we specifically reserve. In our evaluation we use a
variety of factors, such as past payment history, the current financial
condition of the customer, and current economic conditions. We also evaluate our
overall concentration risk, which assesses the total amount owed by each
customer, regardless of its current status. Certain of our international
distributors have carried large balances that have become overdue. While these
distributors have paid down their balances and are still considered performing,
we have either converted certain of these accounts receivable to notes
receivables (some of which are collateralized), or placed distributors on
payment plans that strictly limit the amount of new business that we will honor
unless they adhere to the payment plans. A default by one or more of these
distributors could have a material effect, ranging from $200,000 to $700,000, on
our reported operating results in the period affected. As of December 31, 2003,
our allowance for doubtful accounts amounted to $568,886, an increase from the
December 31, 2002, balance of $338,893.

INVENTORIES

      Our inventories are recorded at the lower of cost or market, with cost
based on a first-in, first-out basis. We periodically assess this inventory for
obsolescence and potential excess by reducing the difference between our cost
and the estimated market value of the inventory based on assumptions about
future demand and historical sales patterns. Our inventories consist of
materials and products that are subject to technological obsolescence and
competitive market conditions. If market conditions or future demand are less
favorable than our current expectations, additional inventory write downs or
reserves may be required, which could have an adverse effect on our reported
results in the period the adjustment are made. Additionally, engineering or
field change orders ("ECO" and "FCO", respectively) introduced by our
engineering group could suddenly create extensive obsolete and/or excess
inventory. Although our engineering group considers the estimated effect that an
ECO or FCO would have on our inventories, a mandated ECO or FCO could have an
immediate adverse affect on our reported financial condition if they required
the use of different materials in either new production or our service
inventory.

      Some of our inventory is returned to us by our customers and refurbished.
This refurbished inventory, once fully repaired and tested, is functionally
equivalent to new production and is utilized to satisfy many of our requirements
under our warranty and service contracts. Upon receipt of the returned material,
this inventory is recorded at a discount from original cost, and further reduced
by estimated future refurbishment expense. While we evaluate this service
material in the same way as our stock inventory (i.e., we periodically test for
obsolescence and excess), this inventory is subject to changing demand that may
not be immediately apparent. Adjustments to this service inventory, following an
obsolescence or excess review, could have an adverse effect on our reported
financial condition in the period when the adjustments are made. In 2003, we
began to review the requirements for service inventory for discontinued products
using the number of active maintenance contracts per product line as the key
determinant for inventory levels and composition. A sudden decline in the number
of customers renewing service agreements in a particular period could lead to an
unanticipated write down of this service inventory for a particular product
line.


                                       25
<PAGE>

INCOME TAXES

      We comply with SFAS No. 109, "Accounting for Income Taxes," which requires
that deferred tax assets and liabilities be recognized using enacted tax rates
for the effect of temporary differences between the book and tax bases of
recorded assets and liabilities. SFAS 109 also requires a valuation allowance if
it is more likely than not that a portion of the deferred tax asset will not be
realized. We have determined that it is more likely than not that our future
taxable income will be sufficient to realize our deferred tax assets.

      Our provision for income taxes is based on our effective income tax rate.
The effective rate is highly dependent upon a number of factors, including our
total earnings, the geographic location of sales, the availability of tax
credits, and the effectiveness of our tax planning strategies. We monitor the
effects of these variables throughout the year and adjust our income tax rate
accordingly. However, if our actual results differ from our estimates, we could
be required to adjust our effective tax rate or record a valuation adjustment on
our deferred tax assets. This could have an adverse effect on our financial
condition and results of operations.

FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS

      All statements herein that are not historical facts or that include such
words as "expect", "anticipate", "project", "estimate" or "believe" or other
similar words are forward-looking statements that we deem to be covered by and
to qualify for the safe harbor protection covered by the Private Securities
Litigation Reform Act of 1995 (the "1995 Act"). Investors and prospective
investors in our Company should understand that several factors govern whether
any forward-looking statement herein will be or can be achieved. Any one of
these factors could cause actual results to differ materially from those
projected herein.

      These forward-looking statements include the expected increases in net
sales of RP and 3D printing systems, services and consumables, and our ability
to maintain our gross margins on these sales. The forward-looking statements
include our assumptions about the size of the RP and 3D printing market, and our
ability to penetrate, compete, and successfully sell our products in these
markets. They include our plans and objectives to introduce new products, to
control expenses, to improve the quality and reliability of our systems, to
respond to new or existing competitive products, and to improve profitability.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions, among others, that we:

      (1)   will be able to continue to introduce new RP and 3D printing systems
            and materials acceptable to the market, and to continue to improve
            our existing technology and software in our current product
            offerings;

      (2)   will be able to successfully develop the 3D printing market with our
            Dimension and Dimension SST products, and that the market will
            accept these products;

      (3)   will be able to maintain our revenues and gross margins on our
            present products;

      (4)   will be able to control our operating expenses;

      (5)   will be able to expand our manufacturing capabilities to meet the
            expected demand generated by Dimension, Dimension SST, paid parts,
            and our consumable products;

      (6)   will be able to successfully and profitably distribute and service
            the Eden333 product line that is governed by our distributor
            agreement with Objet Geometries;

      (7)   will be able to successfully commercialize PPSF and other new
            materials, and that the market will accept these new materials;

      (8)   will be able to successfully develop, introduce, and commercialize
            Triplets, and that the market will accept this product;

      (9)   will be able to procure components from alternative sources, if we
            are unable to procure such components from a single source vendor;
            and

                                       26
<PAGE>

     (10)   will be able to retain and recruit employees with the necessary
            skills to produce, develop, market, and sell our products.

      Assumptions relating to the foregoing involve judgments with respect to,
among other things, future economic, geo-political, competitive, market and
technological conditions, and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are beyond our
control. Although we believe that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of those assumptions could prove
inaccurate, and therefore there is and can be no assurance that the results
contemplated in any such forward-looking statement will be realized. The impact
of actual experience and business developments may cause us to alter our
marketing plans, our capital expenditure budgets, or our engineering, selling,
manufacturing or other budgets, which may in turn affect our results of
operations or the success of our new product development and introduction. We
may not be able to alter our plans or budgets in a timely manner, resulting in
reduced profitability or losses.

      Due to the factors noted above and elsewhere in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, our
future earnings and stock price may be subject to significant volatility,
particularly on a quarterly basis. Additionally, we may not learn of revenue or
earnings shortfalls until late in a fiscal quarter, since we frequently receive
a significant number of orders very late in a quarter. This could result in an
immediate and adverse effect on the trading price of our common stock. Past
financial performance should not be considered a reliable indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

      Our cash and cash equivalent investments are exclusively in short-term
money market, auction rate certificates, and sweep instruments with maturities
of less than 90 days. These are subject to limited interest rate risk. A 10%
change in interest rates would not have a material effect on our financial
condition or results of operations. Our short- and long-term investments are
invested in certificates of deposit that bear interest at fixed rates of 1.35%
to 3.25%. An immediate 10% change in interest would have no material effect on
our financial condition or results of operations.

FOREIGN CURRENCY EXCHANGE RATE RISK

      We have not historically hedged sales from or expenses incurred by our
European operations that are conducted in euros. Therefore, a hypothetical 10%
change in the exchange rates between the U.S. dollar and the euro could increase
or decrease our earnings before taxes by less than $150,000 for the continued
maintenance of our European facility. Throughout 2003 we hedged (euro)1,000,000
of our accounts receivable balances that were denominated in euros. A
hypothetical 10% change in the exchange rates between the US dollar and the euro
could increase or decrease earnings before taxes by between $100,000 and
$300,000.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      The information that appears following Item 15 of this report and is
incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

      We did not have any changes in or disagreements with our accountants on
accounting and financial disclosure.


                                       27
<PAGE>

ITEM 9A. CONTOLS AND PROCEDURES

      Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we conducted
an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) as of the end of the period covered by this
report (the "Evaluation Date"). Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded as of the Evaluation Date that our
disclosure controls and procedures were effective such that the information
relating to us required to be disclosed in our Securities and Exchange
Commission ("SEC") reports (i) is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and (ii) is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      Incorporated herein by reference to our Definitive Proxy Statement with
respect to our Annual Meeting of Stockholders scheduled to be held May 6, 2004.

ITEM 11. EXECUTIVE COMPENSATION.

      Incorporated herein by reference to our Definitive Proxy Statement with
respect to our Annual Meeting of Stockholders scheduled to be held May 6, 2004.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      Incorporated herein by reference to our Definitive Proxy Statement with
respect to our Annual Meeting of Stockholders scheduled to be held May 6, 2004.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      Incorporated herein by reference to our Definitive Proxy Statement with
respect to our Annual Meeting of Stockholders scheduled to be held May 6, 2004.

ITEM 14: PRINCIPAL ACCOUNTANTS FEES AND SERVICE

      Incorporated herein by reference to our Definitive Proxy Statement with
respect to our Annual Meeting of Stockholders scheduled to be held May 6, 2004.


                                       28
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)   Documents

<TABLE>
<CAPTION>
<S>                                                                                                        <C>
      1.    Financial Statements --

        Independent Auditors Report...................................................................        F-1
        Consolidated Balance Sheets December 31, 2003 and 2002........................................        F-2
        Consolidated Statements of Operations Years Ended December 31, 2003, 2002 and 2001............        F-3
        Consolidated Statements of Stockholders' Equity Years Ended December 31, 2003, 2002 and 2001..        F-4
        Consolidated Statements of Cash Flows Years Ended December 31, 2003, 2002 and 2001............        F-5
        Notes to Consolidated Financial Statements....................................................        F-7

      2.    Financial Statement Schedule --

        Schedule II-- Valuation and Qualifying Accounts and Reserves..................................       F-22

</TABLE>

      Notes

      All other schedules called for under Regulation S-X are not submitted
because they are not applicable or not required, or because the required
information is included in the financial statements or notes thereto.

      Separate financial statements of the Registrant have been omitted because
the Registrant is primarily an operating company. All subsidiaries included in
the consolidated financial statements are majority owned, and none of the
subsidiaries have indebtedness that is not guaranteed by the Registrant.


                                       29
<PAGE>


3.    Exhibits

EXHIBIT
  NO.          DESCRIPTION
--------       -----------------------------------------------------------------

3.1            Restated Certificate of incorporation of the Company.(3)

3.2            Amendment to Certificate of Incorporation of the Company.(6)

3.3            By-Laws of the Company.(1)

4.1            Form of Warrant, dated August 22, 2003, issued to Mainfield
               Enterprises, Inc. and Smithfield Fiduciary LLC. (18)

4.2            First Amendment to Warrants, dated as of August 22, 2003, among
               the Registrant, Mainfield Enterprises, Inc. and Smithfield
               Fiduciary LLC. (18)

4.3            Second Amendment to Warrants, dated as of August 22, 2003, among
               the Registrant, Mainfield Enterprises, Inc. and Smithfield
               Fiduciary LLC. (18)

4.4            Form of Warrant, dated August 22, 2003, issued to Smithfield
               Fiduciary LLC and Cranshire Capital, L.P. (18)

4.5            First Amendment to Warrants, dated as of August 22, 2003, among
               the Registrant, Smithfield Fiduciary LLC and Cranshire Capital,
               L.P. (18)

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           Amended and Restated Stratasys, Inc. 1994 Stock Plan.(3)

10.7           Second Amended and Restated Stratasys, Inc. 1994-2 Stock Plan.(8)

10.8           Stratasys, Inc. 1998 Incentive Stock Option Plan.(10)

10.9           Asset Purchase Agreement between the Company and IBM dated
               January 1, 1995.(4)

10.10          Stratasys, Inc. 2000 Incentive Stock Option Plan.(13)

10.11          Stratasys, Inc. 2002 Long-Term Performance and Incentive
               Plan.(15)

10.12          Equipment Lease Agreement between the Company and IBM dated
               January 1, 1995.(4)


                                       30
<PAGE>


EXHIBIT
  NO.          DESCRIPTION
--------       -----------------------------------------------------------------

10.13          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.(7)

10.14          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.(7)

10.15          Assignment, dated June 1, 1994, from S. Scott Crump, James W.
               Comb, William R. Priedeman, 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.(7)

10.16          Lease between the Company and Welsh Edenvale Partners `86, dated
               October 9, 1992.(1)

10.17          Amendment #4 to Lease between the Company and Welsh Edenvale
               Partners `86, dated October 9, 1992, between the Company and
               Carpenter Land Company LLP, dated July 27, 1998.(14)

10.18          Warrant Purchase Agreement by and among the Company and certain
               holders of the Company's Warrants dated September 30, 1998.(11)

10.19          Technology Sale and Assignment Agreement, between the Company and
               SEK Technologies LLC, dated as of December 21, 1998.(12)

10.20          User Agreement, between the Company and SEK Technologies LLC,
               dated as of August 21, 1997.(12)

10.21          Option Agreement, between the Company and SEK Technologies LLC,
               dated August 21, 1997.(12)

10.22          Form of Registration Rights Agreement, between the Company and
               holders of Investment Units in SEK Technologies LLC, dated as of
               January 4, 1999.(12)

10.23          Securities Purchase Agreement, dated as of August 17, 2003, among
               the Company, Manfield Enterprises, Inc. and Smithfield Fiduciary
               LLC.(16)

10.24          Securities Purchase Agreement, dated August 22, 2003, among the
               company Cranshire Capital L.P. and Smithfield Fiduciary LLC.(17)

10.25          North American Distributor Agreement, dated August 28, 2003,
               between Stratasys, Inc. and Objet Geometries, Ltd. [Portions
               omitted pursuant to a request for confidential treatment.](19)

21.1           Subsidiaries of the Company.(14)

23.1           Consent of Rothstein, Kass & Company, P.C.

31.1           Certification pursuant to Rules 13a-14(a) and 15d-14(a) under the
               Securities Exchange Act of 1934, as adopted pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.


                                       31
<PAGE>

EXHIBIT
  NO.          DESCRIPTION
--------       -----------------------------------------------------------------

31.2           Certification pursuant to Rules 13a-14(a) and 15d-14(a) under the
               Securities Exchange Act of 1934, as adopted pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.

32.1           Certification pursuant to 18 U.S.C. Section 1350, as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2           Certification pursuant to 18 U.S.C. Section 1350, as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


      (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
            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 Registration Statement
            on Form SB-2 (File No. 33-99108) filed November 8, 1995.

      (6)   Incorporated by reference from the Company's Form 10-QSB for the
            nine months ended September 30, 1995.

      (7)   Incorporated by reference from Amendment No. 1 to the Registration
            Statement on Form SB-2 (File No. 33-99108) filed December 20, 1995.

      (8)   Incorporated by reference from the Company's definitive Proxy
            Statement on Schedule 14A with respect to the Company's 1997 Annual
            Meeting of Stockholders.

      (9)   Incorporated by reference from the Company's Form 10-KSB for the
            year ended December 31, 1996.

      (10)  Incorporated by reference from the Company's definitive Proxy
            Statement on Schedule 14A with respect to the Company's 1998 Annual
            Meeting of Stockholders.

      (11)  Incorporated by reference from the Company's Form 8-K filed on
            October 16, 1998.

      (12)  Incorporated by reference from the Company's Form 8-K filed January
            15, 1999.

      (13)  Incorporated by reference from the Company's Registration Statement
            on Form S-8 (File No. 333-32782) filed March 17, 2000.

      (14)  Incorporated by reference from the Company's Form 10-K for the year
            ended December 31, 1999.

      (15)  Incorporated by reference from the Company's definitive Proxy
            Statement on Schedule 14A with respect to the Company's 2002 Annual
            Meeting of Stockholders.

      (16)  Incorporated by reference from the Company's Form 8-K filed on
            August 19, 2003.

      (17)  Incorporated by reference from the Company's form 8-K filed on
            August 25, 2003.


                                       32
<PAGE>


      (18)  Incorporated by reference from the Company's Registration Statement
            on Form S-3 (File No. 333-108816) filed September 15, 2003.

      (19)  Incorporated by reference from Amendment No. 1 to the Company's
            Registration Statement on Form S-3 (File No. 333-108816) filed
            October 16, 2003.

(b)   Reports on Form 8-K

      Current Report on Form 8-K dated October 29, 2003 reporting under Item 12
      that the Registrant issued a press release announcing its third quarter
      earnings.



                                       33


<PAGE>



                        STRATASYS, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                                       AND

                          INDEPENDENT AUDITORS' REPORT

                           DECEMBER 31, 2003 AND 2002


<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

CONTENTS

--------------------------------------------------------------------------------

INDEPENDENT AUDITORS' REPORT                                            F-1

CONSOLIDATED FINANCIAL STATEMENTS

   Balance Sheets                                                       F-2

   Statements of Operations                                             F-3

   Statements of Stockholders' Equity                                   F-4

   Statements of Cash Flows                                             F-5-F-6

   Notes to Financial Statements                                        F-7-F-21

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES            F-22


<PAGE>

                     [LOGO ROTHSTEIN, KASS & COMPANY, P.C.]


INDEPENDENT AUDITORS' REPORT


Board of Directors
Stratasys, Inc.

We have audited the accompanying consolidated balance sheets of Stratasys, Inc.
and Subsidiaries (the "Company") as of December 31, 2003 and 2002, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2003.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Stratasys, Inc. and
Subsidiaries as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.

In connection with our audits of the financial statements referred to above, we
audited the financial schedule listed under Schedule II - Valuation and
Qualifying Accounts and Reserves. In our opinion, this financial schedule, when
considered in relation to the financial statements taken as a whole, presents
fairly, in all material respects, the information stated therein.

/s/ Rothstein, Kass & Company, P.C.

Roseland, New Jersey
January 31, 2004


                    Member AGN Affiliated Offices Worldwide


                                      F-1
<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
   DECEMBER 31,                                                                2003                   2002
---------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                  <C>
   ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                                 $ 44,544,341         $ 14,193,590
  Short-term investments                                                         950,000
  Accounts receivable, less allowance for returns and
     doubtful accounts of $767,367 in 2003 and $ 537,374 in 2002              15,788,095           10,640,451
  Inventories                                                                  6,423,658            6,537,446
  Net investment in sales-type leases                                            398,207
  Prepaid expenses                                                             2,809,541              921,404
  Deferred income taxes                                                          146,000              126,000
                                                                            ---------------------------------
          Total current assets                                                71,059,842           32,418,891
                                                                            ---------------------------------
PROPERTY AND EQUIPMENT, NET                                                    6,544,663            5,937,200
                                                                            ---------------------------------

OTHER ASSETS
  Intangible assets, net                                                       2,496,593            2,953,401
  Net investment in sales-type leases                                            888,367
  Deferred income taxes                                                        2,124,000            2,174,000
  Long-term investments                                                          625,000
  Other                                                                          361,761              116,995
                                                                            ---------------------------------
                                                                               6,495,721            5,244,396
                                                                            ---------------------------------

TOTAL ASSETS                                                                $ 84,100,226         $ 43,600,487
                                                                            =================================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Mortgage payable, current portion                                         $         --         $     61,572
  Accounts payable and other current liabilities                               4,940,055            4,141,635
  Unearned maintenance revenues                                                5,263,962            4,474,281
                                                                            ---------------------------------
          Total current liabilities                                           10,204,017            8,677,488

LONG-TERM LIABILITY, MORTGAGE PAYABLE,
  less current portion                                                                              2,156,790
                                                                            ---------------------------------

TOTAL LIABILITIES                                                             10,204,017           10,834,278
                                                                            ---------------------------------


COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
  Common stock, $.01 par value, authorized 15,000,000 shares; issued
    12,028,320 shares in 2003 and 9,777,300 shares in 2002                       120,283               97,773
  Capital in excess of par value                                              69,924,093           34,992,822
  Retained earnings                                                           11,063,902            4,908,388
  Accumulated other comprehensive loss                                           (41,274)             (61,979)
  Less cost of treasury stock, 1,768,856 shares                               (7,170,795)          (7,170,795)
                                                                            ---------------------------------
          Total stockholders' equity                                          73,896,209           32,766,209
                                                                            ---------------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $ 84,100,226         $ 43,600,487
                                                                            =================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-2

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                  2003                2002                  2001
------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                  <C>                  <C>
NET SALES                                            $ 50,889,861         $ 39,807,889         $ 37,571,582
COST OF SALES                                          18,107,580           15,441,448           14,570,815
                                                     -------------------------------------------------------
GROSS PROFIT                                           32,782,281           24,366,441           23,000,767
                                                     -------------------------------------------------------

COSTS AND EXPENSES
     Research and development                           5,047,207            4,687,673            4,915,098
     Selling, general and administrative               18,992,636           16,065,320           14,597,862
                                                     -------------------------------------------------------
                                                       24,039,843           20,752,993           19,512,960
                                                     -------------------------------------------------------
OPERATING INCOME                                        8,742,438            3,613,448            3,487,807
                                                     -------------------------------------------------------

OTHER INCOME (EXPENSE)
     Interest income                                      231,040              153,323              335,908
     Interest expense                                    (123,924)            (178,431)            (103,732)
     Foreign currency gain (loss)                         342,877              320,448             (167,086)
     Other                                                (47,618)              (6,904)             (29,840)
                                                     -------------------------------------------------------
                                                          402,375              288,436               35,250
                                                     -------------------------------------------------------

INCOME BEFORE INCOME TAXES                              9,144,813            3,901,884            3,523,057
INCOME TAXES                                            2,989,299              791,102            1,009,872
                                                     -------------------------------------------------------

NET INCOME                                           $  6,155,514         $  3,110,782         $  2,513,185
                                                     ======================================================

INCOME PER COMMON AND COMMON EQUIVALENT SHARE
     Basic                                           $       0.68         $       0.39         $       0.31
                                                     ======================================================

     Diluted                                         $       0.64         $       0.37         $       0.31
                                                     ======================================================

WEIGHTED AVERAGE NUMBER OF COMMON AND
  COMMON EQUIVALENT SHARES OUTSTANDING
     Basic                                              9,050,668            8,005,193            8,192,984
                                                     ======================================================

     Diluted                                            9,679,435            8,392,304            8,239,278
                                                     ======================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-3

<PAGE>


STRATASYS, INC.  AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
--------------------------------------------------------------------------------------------------------------------------

                                                                                      CAPITAL IN            RETAINED
                                                         COMMON STOCK                  EXCESS OF            EARNINGS
                                                  SHARES             AMOUNT            PAR VALUE            (DEFICIT)
<S>                                              <C>              <C>                 <C>                 <C>
BALANCES, January 1, 2001                        9,188,991        $     91,890        $ 32,876,917        $   (715,579)

EXERCISE OF STOCK OPTIONS AND WARRANTS              10,950                 109              36,391

NET INCOME                                                                                                   2,513,185

OTHER COMPREHENSIVE LOSS
Cumulative translation adjustment

TOTAL COMPREHENSIVE INCOME

PURCHASE OF 132,600 SHARES OF TREASURY
STOCK
                                             --------------------------------------------------------------------------

BALANCES, December 31, 2001                      9,199,941              91,999          32,913,308           1,797,606

EXERCISE OF STOCK OPTIONS                          577,359               5,774           2,079,514

NET INCOME                                                                                                   3,110,782

OTHER COMPREHENSIVE INCOME
Cumulative translation adjustment

TOTAL COMPREHENSIVE INCOME

PURCHASE OF 658,255 SHARES OF TREASURY
STOCK
                                             --------------------------------------------------------------------------

BALANCES, December 31, 2002                      9,777,300              97,773          34,992,822           4,908,388

EXERCISE OF STOCK OPTIONS AND WARRANTS             751,020               7,510           3,078,818

INCOME TAX REDUCTIONS RELATING TO
EXERCISE OF STOCK OPTIONS                                                                2,429,322

SALE OF COMMON STOCK                             1,500,000              15,000          29,423,131

NET INCOME                                                                                                   6,155,514

OTHER COMPREHENSIVE INCOME
Cumulative translation adjustment

TOTAL COMPREHENSIVE INCOME
                                             --------------------------------------------------------------------------

BALANCES, December 31, 2003                     12,028,320        $    120,283        $ 69,924,093        $ 11,063,902
                                             ==========================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                ACCUMULATED
                                                  OTHER
                                               COMPREHENSIVE          TREASURY                             COMPREHENSIVE
                                                   LOSS                STOCK                 TOTAL             INCOME
<S>                                           <C>                  <C>                  <C>                 <C>
BALANCES, January 1, 2001                     $    (48,776)        $ (2,978,377)        $ 29,226,075

EXERCISE OF STOCK OPTIONS AND WARRANTS                                                        36,500

NET INCOME                                                                                 2,513,185        $  2,513,185

OTHER COMPREHENSIVE LOSS
Cumulative translation adjustment                  (23,308)                                  (23,308)            (23,308)
                                                                                                            ------------

TOTAL COMPREHENSIVE INCOME                                                                                  $  2,489,877
                                                                                                            ============

PURCHASE OF 132,600 SHARES OF TREASURY
STOCK                                                                  (449,439)            (449,439)
                                              ------------------------------------------------------

BALANCES, December 31, 2001                        (72,084)          (3,427,816)          31,303,013

EXERCISE OF STOCK OPTIONS                                                                  2,085,288

NET INCOME                                                                                 3,110,782        $  3,110,782

OTHER COMPREHENSIVE INCOME
Cumulative translation adjustment                   10,105                                    10,105              10,105
                                                                                                            ------------

TOTAL COMPREHENSIVE INCOME                                                                                  $  3,120,887
                                                                                                            ============

PURCHASE OF 658,255 SHARES OF TREASURY
STOCK                                                                (3,742,979)          (3,742,979)
                                              ------------------------------------------------------

BALANCES, December 31, 2002                        (61,979)          (7,170,795)          32,766,209

EXERCISE OF STOCK OPTIONS AND WARRANTS                                                     3,086,328

INCOME TAX REDUCTIONS RELATING TO
EXERCISE OF STOCK OPTIONS                                                                  2,429,322

SALE OF COMMON STOCK                                                                      29,438,131

NET INCOME                                                                                 6,155,514        $  6,155,514

OTHER COMPREHENSIVE INCOME
Cumulative translation adjustment                   20,705                                    20,705              20,705
                                                                                                            ------------

TOTAL COMPREHENSIVE INCOME                                                                                  $  6,176,219
                                              ------------------------------------------------------        ============

BALANCES, December 31, 2003                   $    (41,274)        $ (7,170,795)        $ 73,896,209
                                              ======================================================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
   YEARS ENDED DECEMBER 31,                                              2003                  2002                 2001
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                  <C>                  <C>
   CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                      $  6,155,514         $  3,110,782         $  2,513,185
     Adjustments to reconcile net income to net
        cash provided by (used in) operating activities:
          Deferred income taxes                                         2,459,322              309,000              307,000
          Depreciation                                                  1,614,466            1,502,374            1,545,198
          Amortization                                                    919,277              898,833              734,377
          Loss on disposal of property and equipment                       17,877                                    41,720
          Loss on disposal of intangible assets                            53,894
          Increase (decrease) in cash attributable to changes
             in assets and liabilities:
               Accounts receivable                                     (5,147,644)           1,492,287             (636,223)
               Inventories                                                222,759             (485,619)           1,464,046
               Net investment in sales-type leases                     (1,286,574)
               Prepaid expenses                                        (1,889,019)            (361,899)             114,032
               Other assets                                              (242,025)             147,527              (38,796)
               Accounts payable and other current liabilities             822,956              420,314                7,421
               Unearned maintenance revenues                              789,681              (36,470)             192,416
                                                                     ------------------------------------------------------

   NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                  4,490,484            6,997,129            6,244,376
                                                                     ------------------------------------------------------

   CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of investments                                           (1,575,000)
     Acquisition of property and equipment                             (2,339,561)            (602,711)          (3,928,177)
     Payments for intangible assets                                      (516,363)            (564,012)            (501,038)
                                                                     ------------------------------------------------------

   NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                 (4,430,924)          (1,166,723)          (4,429,215)
                                                                     ------------------------------------------------------

   CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from mortgage payable                                                                               2,287,500
     Payments of obligations under capital leases                                             (130,320)            (187,692)
     Payments of mortgage payable                                      (2,218,362)             (52,615)             (16,523)
     Proceeds from sale of common stock                                29,438,131
     Proceeds from exercise of stock options and warrants               3,086,328            2,085,288               36,500
     Purchases of treasury stock                                                            (3,742,979)            (449,439)
                                                                     ------------------------------------------------------

   NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                 30,306,097           (1,840,626)           1,670,346
                                                                     ------------------------------------------------------

   EFFECT OF EXCHANGE RATE CHANGES ON CASH                                (14,906)              (7,588)             (11,415)
                                                                     ------------------------------------------------------

   NET INCREASE IN CASH AND CASH EQUIVALENTS                           30,350,751            3,982,192            3,474,092
                                                                     ------------------------------------------------------

   CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                        14,193,590           10,211,398            6,737,306
                                                                     ------------------------------------------------------

   CASH AND CASH EQUIVALENTS, END OF YEAR                            $ 44,544,341         $ 14,193,590         $ 10,211,398
                                                                     ======================================================
</TABLE>

See accompanying notes to consolidated financial statements

                                      F-5
<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31,                                  2003               2002             2001
-------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, cash paid during the year
for:
<S>                                                     <C>               <C>               <C>
Interest                                                $  137,390        $  177,739        $   89,298
                                                        ==============================================

Income taxes                                            $1,151,005        $1,180,637        $  138,692
                                                        ==============================================


SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:

Machinery and equipment transferred from
inventory                                               $       --        $  825,755        $  761,190
                                                        ==============================================

Inventory transferred from machinery and
equipment                                               $  108,971        $       --        $       --
                                                        ==============================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>


STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

1.    NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Nature of Operations

Stratasys, Inc. and Subsidiaries (collectively 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 and the related consumable materials and maintenance worldwide.

Principles of Consolidation

The consolidated financial statements include the accounts of Stratasys, Inc.
and its wholly owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.

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," approximate
the carrying amounts presented in the consolidated balance sheets.

Cash and Cash Equivalents

The Company considers all highly-liquid debt instruments purchased with
maturities of three months or less to be cash equivalents. As of December 31,
2003, and at various times during the year, balances of cash at financial
institutions exceeded the federally insured limit. The Company has not
experienced any losses in such accounts and believes it is not subject to any
significant credit risk on cash and cash equivalents.

Short-term and Long-term Investments

Short-term and long-term investments consist of certificates of deposit with
maturities ranging from April 2004 through November 2007.

Accounts Receivable

The Company carries its accounts receivable at cost less an allowance for
returns and doubtful accounts. On a periodic basis, the Company evaluates its
accounts receivable and establishes an allowance for returns and doubtful
accounts based on a history of returns, past write-offs and collections and
current credit conditions.

Inventories

Inventories are stated on the first-in, first-out method, at the lower of cost
or market. Inventory costs are comprised of material, direct labor and overhead.

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.


                                      F-7
<PAGE>


STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

1.    NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed using the straight-line
method over the estimated useful lives of the assets ranging from 2-30 years.

Intangible Assets

Intangible assets are being amortized over their estimated useful or economic
lives using the straight-line method as follows:

RPS technology                                          11 years
Capitalized software development costs                  3 years
Patents                                                 10 years
Trademarks                                              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.

Unearned Maintenance Revenues

Maintenance revenues are recognized on a straight-line basis over the term of
the related maintenance contracts, which are typically one to two years.

Revenue Recognition

The Company recognizes revenues from the sale of RPS machines and consumables
when shipped. The Company establishes allowances for estimated returns at the
time of shipment. Service revenues, excluding maintenance contracts, are
recognized at the time the services are performed. Revenues from sales-type
leases of machines are recognized at the present value of future minimum
payments and are recorded when the machines are shipped. Interest income on
sales-type leases is recognized as earned, based upon amortization schedules.


                                      F-8
<PAGE>


STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


1.    NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)


Advertising

Advertising costs are charged to operations as incurred and were approximately
$1,105,000, $854,000, and $584,000 for 2003, 2002 and 2001, respectively.

Research and Development Costs

Expenditures for research, development and engineering of products and
manufacturing processes are expensed as incurred.

Income Taxes

The Company complies with SFAS No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial reporting of income taxes.
Deferred income tax assets and liabilities are computed for differences between
the 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 affect
taxable income. Valuation allowances are established, when necessary, to reduce
the deferred income tax assets to the amount expected to be realized.

Common Stock

In November 2003, the Board of Directors of the Company approved a three-for-two
stock split in the form of a stock dividend, to all shareholders of record on
November 20, 2003. The Company's shares began trading post split effective
December 22, 2003. All transactions and disclosures in the consolidated
financial statements, related to the Company's common stock, have been adjusted
to reflect the effects of the stock split.

Income Per Common Share

The Company complies with SFAS No. 128, "Earnings Per Share." SFAS No. 128
requires dual presentation of basic and diluted income per share for all periods
presented. Basic income per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then share in the income of the Company. The
difference between the number of shares used to compute basic income per share
and diluted income per share relates to additional shares to be issued upon the
assumed exercise of stock options and warrants, net of shares hypothetically
repurchased at the average market price with the proceeds of exercise of 628,767
in 2003, 387,111 in 2002, and 46,294 in 2001.

Stock-Based Compensation

The Company follows SFAS No. 123 "Accounting for Stock-Based Compensation." The
provisions of SFAS No. 123 allow companies to either expense the estimated fair
value of stock options or to continue to follow the intrinsic value method set
forth in APB Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25")
but disclose the pro forma effect on net income (loss) had the fair value of the
options been expensed. The Company has elected to continue to apply APB 25 in
accounting for its stock option incentive plans.


                                      F-9
<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

1.    NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)


Stock-Based Compensation (continued)

Had compensation cost for the Company's five stock option plans been determined
based on the fair value, at the grant or issue date, in 2003, 2002 and 2001 and,
consistent with the provisions of SFAS No. 123, the Company's net income and
income per share would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                 2003                   2002                  2001
<S>                                          <C>                   <C>                   <C>
Net income, as reported                      $   6,155,514         $   3,110,782         $   2,513,185
Deduct: Total stock-based
  compensation expense determined
  under the fair value method for all
  awards, net of related tax effect               (854,000)             (457,000)             (526,000)
                                             ---------------------------------------------------------

Net income, pro forma                        $   5,301,514         $   2,653,782         $   1,987,185
                                             =========================================================

Earnings per share:
     Basic income per share -
       as reported                           $        0.68         $        0.39         $        0.31
                                             =========================================================

     Diluted income per share -
       as reported                           $        0.64         $        0.37         $        0.31
                                             =========================================================

     Basic income per share -
       pro forma                             $        0.59         $        0.33         $        0.24
                                             =========================================================

     Diluted income per share -
       pro forma                             $        0.55         $        0.32         $        0.24
                                             =========================================================
</TABLE>

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.

Comprehensive Income

The Company complies with SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes rules for the reporting and display of comprehensive income
and its components. SFAS No. 130 requires the Company's change in the foreign
currency translation adjustment to be included in other comprehensive income.


                                      F-10
<PAGE>


STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

2.    ACCOUNTS RECEIVABLE

At December 31, 2003 and 2002, accounts receivable included balances due from
foreign entities of approximately $7,832,000 and $6,388,000, respectively.

3.    INVENTORIES

Inventories consist of the following at December 31:

                                                 2003                    2002

Finished goods                                $2,991,198              $2,869,223
Raw materials                                  3,432,460               3,668,223
                                              ----------------------------------

                                              $6,423,658              $6,537,446
                                              ==================================


4.    NET INVESTMENT IN SALES-TYPE LEASES

Beginning in 2003, the Company began leasing certain of its machines under
agreements accounted for as sales-type leases. Included in revenues for the year
ended December 31, 2003 are approximately $1,366,000 of revenues related to
sales-type leases. These non-cancelable leases expire over the next two to four
years.

The following lists the components of the net investment in sales-type leases as
of December 31, 2003:

Net minimum lease payments receivable                      $ 1,320,398
Less unearned interest income                                  (33,824)
                                                           -----------

Net investment in sales-type leases                        $ 1,286,574
                                                           ===========

Sales-type leases consist of:
   Net investment in sales-type leases - short term        $   398,207
   Net investment in sales-type leases - long term             888,367
                                                           -----------

Net investments in sales-type leases, as above             $ 1,286,574
                                                           ===========


                                      F-11
<PAGE>


STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

4.    NET INVESTMENT IN SALES-TYPE LEASES (CONTINUED)

Future minimum lease payments due from customers under sales-type leases as of
December 31, 2003, are as follows:


       YEAR ENDING DECEMBER 31,

                2004                                       $   415,261
                2005                                           372,234
                2006                                           321,236
                2007                                           211,667
                                                           -----------
                                                           $ 1,320,398
                                                           ===========


The amortization of unearned interest income for sales-type leases amounted to
approximately $4,000 for the year ended December 31, 2003.


5.    PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:


                                                    2003                 2002

Machinery and equipment                         $ 7,004,574          $ 5,678,761
Building                                          2,330,953            2,330,953
Land                                                694,876              694,876
Computer equipment and software                   3,820,668            3,376,780
Office equipment                                    914,558              840,747
Leasehold improvements                            1,474,575            1,324,587
                                                --------------------------------
                                                 16,240,204           14,246,704

Accumulated depreciation and
amortization                                      9,695,541            8,309,504
                                                --------------------------------

                                                $ 6,544,663          $ 5,937,200
                                                ================================



                                      F-12
<PAGE>


STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

6.    INTANGIBLE ASSETS

Intangible assets consist of the following at December 31:

<TABLE>
<CAPTION>

                                                  2003                              2002

                                        GROSS           ACCUMULATED         GROSS          ACCUMULATED
                                   CARRYING AMOUNT     AMORTIZATION    CARRYING AMOUNT     AMORTIZATION
                                   --------------------------------    --------------------------------
<S>                                <C>                 <C>             <C>                 <C>
RPS technology                        $2,858,532        $2,178,247        $2,858,532        $1,913,071
Capitalized software
  development costs                    4,003,547         3,310,144         3,622,518         2,836,218
Patents                                1,850,023           734,917         1,809,243           595,638
Trademarks                                18,584            10,785            17,227             9,192
                                   --------------------------------    --------------------------------
                                       8,730,686        $6,234,093         8,307,520        $5,354,119
                                                       ============                        ============

Accumulated amortization               6,234,093                           5,354,119
                                   ---------------                     ---------------

                                      $2,496,593                          $2,953,401
                                   ===============                     ===============

Aggregate amortization expense        $  919,277                          $  898,833
                                   ===============                     ===============
</TABLE>


For the years ended December 31, 2003, 2002 and 2001, amortization of
capitalized software development costs charged to operations was $473,926,
$473,280 and $334,590, respectively.

Estimated amortization expense for the five years subsequent to December 31,
2003 is as follows:

      YEAR ENDING DECEMBER 31,

                2004                                      $   787,000
                2005                                          718,000
                2006                                          291,000
                2007                                          141,000
                2008                                          141,000


7.    CREDIT LINE

The Company has an available line of credit from a financial institution for the
lesser of $4,000,000 or a defined borrowing base. The credit line bears interest
at defined rates based upon two different indexes and expires in June 2004. No
amounts were outstanding at December 31, 2003 and 2002.


                                      F-13
<PAGE>


STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

8.    ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

Accounts payable and other current liabilities consist of the following at
December 31:


                                                    2003                 2002

Trade                                            $1,062,560           $  673,607
Compensation, commissions
and related benefits                              2,811,095            2,683,150
Reserve for warranty expenses                       131,806               92,963
Other                                               934,594              691,915
                                                 -------------------------------

                                                 $4,940,055           $4,141,635
                                                 ===============================


9.    MORTGAGE PAYABLE

In August 2001, the Company obtained a mortgage from a bank of $2,287,500 for
the purchase of land and building used in the Company's manufacturing
operations, which was previously leased. The loan was collateralized by the
property and payable in monthly installments of $18,396, including interest of
7.38% per annum, with a final payment due in July 2006. In October 2003, the
Company repaid the remaining balance of approximately $2,171,000.

10.   INCOME TAXES

The components of the Company's deferred tax assets (liabilities) at December
31, 2003 and 2002 are as follows:

                                               2003                2002

Depreciation                               $  (101,000)        $    49,000
Amortization                                   128,000              47,000
Allowance for doubtful accounts                212,000             125,000
Reserve for warranty expenses                   49,000              35,000
Reserve for sales returns, net                  74,000              73,000
Unrealized gain on foreign currency           (189,000)           (107,000)
Federal minimum tax credit carryforwards       156,000             156,000
Other                                          159,000
Research and development tax
   credit carryforwards                      1,782,000           1,922,000
                                           -------------------------------

                                           $ 2,270,000         $ 2,300,000
                                           ===============================


                                      F-14

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

10.   INCOME TAXES (CONTINUED)

At December 31, 2003, the Company had research and development tax credit
carryforwards of approximately $1,782,000 which can be utilized against future
federal income tax and expire in various years through 2022.

Income before income taxes for the years ended December 31, 2003, 2002 and 2001
are as follows:


                                  2003               2002                2001

United States                 $9,030,998          $3,758,912          $3,446,884
Foreign                          113,815             142,972              76,173
                              --------------------------------------------------

                              $9,144,813          $3,901,884          $3,523,057
                              ==================================================



The components of income taxes (benefit) for the years ended December 31, 2003,
2002 and 2001 are as follows:


                              2003                  2002                 2001

CURRENT
Federal                   $   396,432          $   409,369          $   620,803
State                          75,488               33,325               46,714
Foreign                        58,057               39,408               35,355
                          ------------------------------------------------------
                              529,977              482,102              702,872
                          ------------------------------------------------------

DEFERRED
Federal                     2,379,676              214,000              383,000
State                          79,646               95,000              (76,000)
                          ------------------------------------------------------
                            2,459,322              309,000              307,000
                          ------------------------------------------------------

                          $ 2,989,299          $   791,102          $ 1,009,872
                          =====================================================


                                      F-15
<PAGE>


STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

10.   INCOME TAXES (CONTINUED)


A reconciliation of the statutory federal income tax rate and the effective tax
rate for the years ended December 31, 2003, 2002 and 2001 are as follows:

                                                   2003     2002      2001
   Federal statutory rate                          34.0%    34.0%     34.0%
   Foreign sales corporation
     exclusion                                     (0.6)    (2.0)     (3.1)
   Earnings of subsidiaries taxed
     at other than U.S. statutory rate             (0.2)     0.2       0.1
   State income taxes, net of
     federal effect                                 0.6      1.1      (0.8)
   Permanent differences and other                 (0.1)    (8.7)      6.0
   Utilization of research and
     development tax credit                        (1.0)    (4.3)     (7.5)
                                                   ------------------------
   Effective income tax rate                       32.7%    20.3%     28.7%
                                                   ========================


11.   COMMITMENTS

The Company rents certain of its facilities under leases, which expire through
2007.

Aggregate future minimum annual rental payments in the years subsequent to
December 31, 2003 are approximately as follows:

       YEAR ENDING DECEMBER 31,

                 2004                   305,000
                 2005                   225,000
                 2006                   170,000
                 2007                   102,000

Rent expense for the years ended December 31, 2003, 2002 and 2001 was
approximately $604,000, $521,000 and $654,000, respectively.


                                      F-16

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

12.   COMMON STOCK

In August 2003, the Company sold 1,500,000 shares of common stock through a
private investment in public equity financing transaction (the "Transaction"),
generating cash of approximately $29,438,000, net of related expenses. In
connection with the Transaction, the Company also issued warrants to purchase
225,000 shares of common stock at exercise prices ranging from $23.11 to $27.63.

13.   STOCK OPTIONS AND WARRANTS

The Company has various stock option plans that have been approved by
shareholders. The plans provide for the granting of options to purchase the
Company's common stock to qualified employees of the Company, independent
contractors, consultants, and other persons to purchase up to 3,825,000 shares
of common stock. Of the 3,825,000 options available for grant, 2,886,892 options
have been granted, leaving 938,108 options left to be granted by the Company. No
stock-based employee compensation cost is reflected in net income, as all
options under the plans are granted at a price not less than the fair market
value of the Company's common stock at the date of grant. All options
principally vest over five years and are exercisable over ten years.

The following summarizes the information relating to outstanding stock options
and the activity during 2003, 2002 and 2001:

                                                                     WEIGHTED
                            NUMBER                                   AVERAGE
                             OF                 PER SHARE            OPTION
                           SHARES             OPTION PRICE             PRICE
Shares under option
at January 1, 2001        1,986,941      $ 1.06   --   $ 14.54       $   4.75
Granted in 2001             425,475        1.84   --      4.16           2.05
Exercised in 2001           (10,950)       3.33   --      3.33           3.33
Expired in 2001            (150,450)       3.50          11.67           7.03
Forfeited in 2001           (63,150)       1.56   --      6.09           3.88
                        -------------------------------------------------------

Shares under option
at December 31, 2001      2,187,866        1.06   --     14.54           4.49
Granted in 2002              84,750        3.33   --      6.25           4.39
Exercised in 2002          (577,359)       1.94   --      5.33           3.61
Expired in 2002            (340,680)       3.33   --     14.29           6.00
Forfeited in 2002           (21,782)       1.94   --     13.75           5.34
                        -------------------------------------------------------

Shares under option
at December 31, 2002      1,332,795        1.06   --     14.54           3.37


                                      F-17
<PAGE>


STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

13.   STOCK OPTIONS AND WARRANTS (CONTINUED)


                                                                      WEIGHTED
                               NUMBER                                 AVERAGE
                                OF               PER SHARE             OPTION
                              SHARES           OPTION PRICE            PRICE

Shares under option
   at December 31, 2002       1,332,795         1.06  --    14.54       3.37
Granted in 2003                 324,250         6.35  --    29.33      27.23
Exercised in 2003              (717,375)        1.84  --    10.00       4.37
Expired in 2003                 (41,625)        3.17  --    21.79      14.45
Forfeited in 2003               (15,690)        1.06  --    13.09       8.64
                        -------------------------------------------------------

Shares under option
   at December 31, 2003         882,355      $ 1.844  --  $ 29.33     $12.44
                        =======================================================

Options exercisable at
   December 31, 2003            467,175      $ 1.844  --  $ 28.60     $12.27

                        =======================================================

Options exercisable at
   December 31, 2002            925,395      $ 1.066        14.54     $ 3.45
                        =======================================================

Options exercisable at
   December 31, 2001          1,646,771      $ 1.066        14.54     $ 4.89



                                      F-18
<PAGE>


STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

13.   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 warrants issued and the activity during 2003, 2002 and
2001:


                                                                    WEIGHTED
                                   NUMBER                           AVERAGE
                                     OF            PER SHARE        WARRANT
                                   SHARES        WARRANT PRICE      PRICE

Shares under warrants
   at January 1, 2001               354,533    $ 3.33- $   10.29    $ 8.32
Issued in 2001                      181,500      2.40 -     4.67      3.72
Exercised in 2001                   (19,500)     3.33 -     3.33      3.33
Expired in 2001                    (104,033)     9.33 -    10.29      9.40
Forfeited in 2001                   (90,000)     4.67 -     4.67      4.67
                        -------------------------------------------------------

Shares under warrants
   at December 31, 2001             322,500      2.40 -     9.25      6.71

Expired in 2002                    (259,500)     3.33 -     9.25      7.71
                        -------------------------------------------------------

Shares under warrants
   at December 31, 2002              63,000      2.40 -     3.33      2.53
Issued in 2003                      225,000     23.11 -    27.63     24.47
Exercised in 2003                   (33,645)     3.33 -     3.33      3.33
Expired in 2003                     (20,355)     2.40 -     2.40      2.40
                        -------------------------------------------------------

Shares under warrants
   at December 31, 2003             234,000    $ 3.33- $   27.63   $ 23.65
                        =======================================================



                                      F-19

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

13.   STOCK OPTIONS AND WARRANTS (CONTINUED)

The Company used the Black-Scholes option-pricing model to determine the fair
value of grants made in 2003, 2002 and 2001. The following assumptions were
applied in determining the pro forma compensation cost:

                                 2003                2002             2001
Risk-free interest rate      3.07 - 3.97%        4.19 - 4.49%        5.00%
Expected option term          5-6 years            5-6 years        4 years
Expected price volitility        83%                 83%              83%
Dividend yield                    -                   -                -


14.   EXPORT SALES


Export sales were as follows for the years ended December 31:

                                   2003               2002               2001

Europe                         $ 9,914,413        $ 8,817,770        $ 8,017,111
Asia Pacific                    10,333,708          9,091,108          9,916,468
Other                            2,338,497          1,512,068          1,350,352
                               -------------------------------------------------

                               $22,586,618        $19,420,946        $19,283,931
                               =================================================


                                      F-20
<PAGE>


STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

15.   QUARTERLY RESULTS (UNAUDITED)


<TABLE>
<CAPTION>
                                FIRST            SECOND        THIRD          FOURTH
                               QUARTER          QUARTER       QUARTER        QUARTER
2003
<S>                          <C>             <C>            <C>             <C>
   Net sales                 $ 10,677,641    $ 12,073,761   $ 12,898,673    $ 15,239,786
   Gross profit                 6,857,571       7,915,524      8,481,368       9,527,818
   Net income                   1,143,573       1,516,530      1,985,317       1,510,094(a)
   Income per
     common and common
     equivalent share:
        Basic                        0.14            0.18           0.21            0.15(a)
        Diluted                      0.13            0.17           0.20            0.14(a)

2002
   Net sales                  $ 6,396,389    $ 10,111,608   $ 12,028,475    $ 11,271,417
   Gross profit                 3,946,254       5,819,280      7,701,580       6,899,327
   Net income (loss)             (724,926)        517,851      1,723,214       1,594,643
   Income (loss) per
     common and common
     equivalent share:
        Basic                       (0.09)           0.07           0.21            0.20
        Diluted                     (0.09)           0.06           0.21            0.19
</TABLE>


(a) Net income for the fourth quarter of 2003 was reduced by approximately
$500,000 or $.06 and $.05 per common share on a basic and diluted basis
respectively as a result of the effective tax rate for 2003 being higher than
estimated during the first three quarters. The increased tax rate resulted from
operating income for the total year being significantly higher than originally
projected in the first three quarters; the tax benefit of the foreign sales
corporation exclusion and research and development credits being less than
anticipated; and, the elimination of the estimated income tax benefit from the
disqualifying dispositions of shares acquired through exercise of stock options
which should have been included in paid-in capital.



                                      F-21
<PAGE>


STRATASYS, INC. AND SUBSIDIARIES

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
---------------------------------------------------------------------------------------------------------------

     COLUMN A                                         COLUMN B        COLUMN C        COLUMN D       COLUMN E
                                                      BALANCES AT     ADDITIONS -     DEDUCTIONS     BALANCES
                                                      BEGINNING       CHARGED         FROM           AT END
     DESCRIPTION                                      OF YEAR         TO INCOME       RESERVES       OF YEAR
2003
<S>                                                   <C>             <C>             <C>             <C>
Reserve for bad debts and allowances                  $338,893        $231,058        $  1,065        $568,886
                                                      ========================================================

Reserve for sales returns and other allowances        $198,481        $     --        $     --        $198,481
                                                      ========================================================

2002

Reserve for bad debts and allowances                  $317,955        $281,732        $260,794        $338,893
                                                      ========================================================

Reserve for sales returns and other allowances        $244,933        $102,366        $148,818        $198,481
                                                      ========================================================

2001

Reserve for bad debts and allowances                  $264,260        $ 60,000        $  6,305        $317,955
                                                      ========================================================

Reserve for sales returns and other allowances        $194,099        $390,880        $340,046        $244,933
                                                      ========================================================
</TABLE>


                                      F-22

<PAGE>


                                   SIGNATURES


      In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.




                                          STRATASYS, INC.


                                          By: /s/ S. SCOTT CRUMP
                                              ----------------------------------
                                              S. Scott Crump
                                              President



Dated: March 12, 2004


      In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.


<TABLE>
<CAPTION>
<S>                                        <C>                                              <C>

        /s/ S. SCOTT CRUMP
-------------------------------------      Chairman of the Board of Directors,
           S. Scott Crump                  President, Chief Executive Officer,
                                             Treasurer, (Principal Executive
                                                        Officer)                            March 12, 2004

      /s/ THOMAS W. STENOIEN
-------------------------------------      Executive Vice President and Chief
         Thomas W. Stenoien                   Financial Officer (Principal                  March 12, 2004
                                            Financial and Accounting Officer)


         /s/ RALPH E. CRUMP                             Director                            March 12, 2004
-------------------------------------
           Ralph E. Crump


        /s/ EDWARD J. FIERKO                            Director                            March 12, 2004
-------------------------------------
          Edward J. Fierko


      /s/ CLIFFORD H. SCHWIETER                         Director                            March 12, 2004
-------------------------------------
        Clifford H. Schwieter


       /s/ ARNOLD J. WASSERMAN                          Director                            March 12, 2004
-------------------------------------
         Arnold J. Wasserman


        /s/ GREGORY L. WILSON                           Director                            March 12, 2004
-------------------------------------
          Gregory L. Wilson
</TABLE>