----

----

| (Mark One) |                           |
|------------|--------------------------------|
| [√]  |       | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|       |                           | For the fiscal year ended December 31, 2010 |
|       |                           | OR |
| [   ] |                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|       |                           | For the transition period from ______ to ______ |

| Delaware                                                    | 36-3658792                                |
|-------------------------------------------------------------|-------------------------------------------|
| State or other jurisdiction of                              | (I.R.S. Employer                          |
| incorporation or organization                               | Identification No.)                       |
|                                                        |                                      |
| 7665 Commerce Way, Eden Prairie, Minnesota                  | 55344                                     |
| (Address of Principal Executive Offices)                    | (Zip Code)                                |
|                                                        |                                      |
| Registrant’s telephone number, including area code    | (952) 937-3000                            |
|                                                        |                                      |
| Securities registered pursuant to Section 12(b) of the Act: |                                      |
| Title of each class                                         | Name of each exchange on which registered |
| Common stock, $.01 par value                                | NASDAQ Global Select Market               |
|                                                        |                                      |
| Securities registered pursuant section 12(g) of the Act:    |
| None                                                        |

| Large accelerated filer [   ] | Accelerated filer [√]          |
|-----------------------------------------|--------------------------------------|
| Non-accelerated filer [   ]   | Smaller reporting company [   ] |

----

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|       |                           |                                                                                                               | Page   |
|------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------|--------|
| Part I     |       |                                                                                                               |   |
|       |                           |                                                                                                               |   |
| Item 1.    |                           | Business                                                                                                           | 1      |
|       |                           |                                                                                                               |   |
| Item 1A.   |                           | Risk Factors                                                                                                       | 14     |
|       |                           |                                                                                                               |   |
| Item 1B.   |                           | Unresolved Staff Comments                                                                                          | 20     |
|       |                           |                                                                                                               |   |
| Item 2.    |                           | Properties                                                                                                         | 20     |
|       |                           |                                                                                                               |   |
| Item 3.    |                           | Legal Proceedings                                                                                                  | 21     |
|       |                           |                                                                                                               |   |
| Item 4.    |                           | Reserved                                                                                                           | 21     |
|       |                           |                                                                                                               |   |
| Part II    |                           |                                                                                                               |   |
|       |                           |                                                                                                               |   |
| Item 5.    |                           | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 22     |
|       |                           |                                                                                                               |   |
| Item 6.    |                           | Selected Financial Data                                                                                            | 24     |
|       |                           |                                                                                                               |   |
| Item 7.    |                           | Management’s Discussion and Analysis of Financial Condition and Results of Operation                         | 25     |
|       |                           |                                                                                                               |   |
| Item 7A.   |                           | Quantitative and Qualitative Disclosures About Market Risk                                                         | 40     |
|       |                           |                                                                                                               |   |
| Item 8.    |                           | Financial Statements and Supplementary Data                                                                        | 41     |
|       |                           |                                                                                                               |   |
| Item 9.    |                           | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                               | 41     |
|       |                           |                                                                                                               |   |
| Item 9A.   |                           | Controls and Procedures                                                                                            | 41     |
|       |                           |                                                                                                               |   |
| Item 9B.   |                           | Other Information                                                                                                  | 41     |
|       |                           |                                                                                                               |   |
| Part III   |                           |                                                                                                               |   |
|       |                           |                                                                                                               |   |
| Item 10.   |                           | Directors, Executive Officers and Corporate Governance                                                             | 42     |
|       |                           |                                                                                                               |   |
| Item 11.   |                           | Executive Compensation                                                                                             | 42     |
|       |                           |                                                                                                               |   |
| Item 12.   |                           | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                | 42     |
|       |                           |                                                                                                               |   |
| Item 13.   |                           | Certain Relationships and Related Transactions, and Director Independence                                          | 42     |
|       |                           |                                                                                                               |   |
| Item 14.   |                           | Principal Accountant Fees and Services                                                                             | 42     |
|       |                           |                                                                                                               |   |
| Part IV    |                           |                                                                                                               |   |
|       |                           |                                                                                                               |   |
| Item 15.   |                           | Exhibits and Financial Statement Schedules                                                                         | 43     |
|       |                           |                                                                                                               |   |
| Signatures |                           |

----

- During the first quarter of 2010, we signed a Master OEM Agreement (the “OEM Agreement”) with Hewlett-Packard Company (“HP”) to develop and manufacture a line of HP-branded 3D printers. Our current agreement with HP has an initial term that ends on September 30, 2011 and provides for automatic one-year renewals unless either party terminates it upon advance written notice. The initial term of the agreement provides for a territory that covers five European countries. Our intention is to expand this territory worldwide; however, there can be no assurance that HP will want to expand the territory in which they sell our 3D printers and other products. Furthermore, even though the Agreement may be automatically renewed, there can be no assurance that the Agreement will continue beyond its initial term or any renewal term. If HP does not expand the territory or the Agreement is terminated, we will not achieve the anticipated benefits of entering into the Agreement, which include substantial additional revenue and profits as well as validation of our products in the market place. 

- In February 2011, we obtained ISO 9001:2008 certification. ISO 9001:2008 is a standard established by the International Organization for Standardization that provides a set of standardized requirements for a quality management system. We believe that ISO certification of our quality management systems will help us expand our products’ applicability to RP and DDM in key markets such as aerospace, defense, medical and automotive.  
- In July 2010, we extended our collaborative agreement with a Fortune 500 global manufacturing company to develop new platforms for DDM applications. This extension has similar terms and objectives as the previous agreements and entitled us to approximately $800,000 in reimbursement payments as we achieved specific milestones. In 2010 and 2009, we offset approximately $1.2 million and $2.2 million of R&D expenses with monies received from this customer. As a result of prior collaborations with this Fortune 500 company, we had a commercial release of the Fortus 900mc in August 2008, which has the largest build envelop in our current product line. It is capable of building parts up to 4.5 feet diagonally, nine times larger than parts built by the Fortus 400mc introduced in 2007. The Fortus 900mc uses ball-screw technology, which improves part accuracy and repeatability and can hold tighter tolerances. 

----

- In January 2010, we expanded the Dimension uPrint product line by introducing the uPrint Plus. This system offers the same small footprint as the previously introduced uPrint but offers a 33% larger build envelope. It also allows the user to print in seven additional colors and offers two resolution settings.  Concurrent with the launch of the uPrint Plus, we also introduced two support-material enhancements. The first, Smart Supports, is a software feature that reconfigures the way support material is structured in the build process in order to reduce support material usage by as much as 40%. The second is a new soluble support material called SR-30, which can dissolve 69% faster than the previous soluble support material.   
- In February 2009, we announced the rebranding of our high-performance RP and DDM products as Fortus 3D Production Systems. Since we introduced Dimension and RedEye as individual brands several years before, there had been some confusion about the identity of our flag-ship product line. I nformally it had been called the FDM Group or the High-End Systems line. By branding this line as Fortus, we have aimed to give it a distinct and powerful brand name.  
- In January 2009, we introduced the uPrint Personal 3D Printer priced at $14,900. Designed for the desktop, uPrint requires only a 25 x 26 inch footprint and features an 8 x 6 x 6 inch build envelope.  Using our proven FDM technology, uPrint builds models with ABS plus  — a material that on average is 40 percent stronger than our standard ABS material, making it ideally suited for testing the form, fit and function of models and prototypes. The uPrint also features a soluble support removal system, allowing for hands-free removal of the model support material.  
- In January 2009, we began offering a new high-performance thermoplastic for direct digital manufacturing and rapid prototyping called ULTEM 9085 (a trademark of SABIC Innovative Plastics IP BV). ULTEM 9085 is a strong, lightweight, flame-retardant thermoplastic widely used in aircraft interiors and was originally developed to help the aerospace industry boost fuel efficiency and safety.  It offers strength and flexibility while producing lighter interior parts than other flame retardant thermoplastics used in the aerospace industry. 

- the ability to use the device in an office environment due to the absence of hazardous emissions  
- little or no post-processing  
- minimal material waste  
- better processing and build repeatability 

----

- ease of use  
- minimal system set up  
- the availability of a variety of plastic materials  
- modeling in product-grade plastics for functional testing  
- no need for costly replacement lasers and laser parts  
- higher reliability 

----

| - Aerospace    
- Automotive    
- Consumer Products | - Architecture    
- Business Machines    
- Defense |
|----------------------------------------------------------------|----------------------------------------------------------------|

| - Direct digital manufacturing of custom parts   
- Electronics   
- Heavy Equipment   
- Medical Systems   
- Tooling | - Educational Institutions    
- Fixtures    
- Medical Analysis    
-  Mold Making |
|--------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|

| - Aerospace and automotive spare parts   
- Aerospace ground support equipment   
- Free-form graphic design | - Gaming, art and animation   
- Secondary tooling   
- Unmanned air and robotic systems |
|------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|

----

- 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.  
- 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.  
- PC-ABS is a blend of PC and ABS plastic. The blend combines the strength of PC with the flexibility of ABS.  
- Polyphenylsufone (“PPSF”) is a specialty thermoplastic material that offers excellent mechanical properties while being subjected to demanding thermal and chemical environments. PPSF is used to make prototype parts for numerous industries, including automotive, fluid and chemical handling, aerospace, and medical sterilization.  
- PC-ISO is a derivative of PC that is translucent and can be sterilized for medical device or surgical jig and fixture production or prototyping.  
- ABS-M30i is a biocompatible material ideal for direct digital manufacturing applications in the medical, food and pharmaceutical equipment industries with ISO 10993 certification relating to ethylene oxide sterilization requirements.  
- ABS plus  and M-30, like ABS, are thermoplastic materials with all the associated benefits. ABS plus  has the added benefit of creating additional part strength. Parts built with these materials are on average 40% stronger than our standard ABS parts. 

----

- ABSi is a higher grade translucent ABS, which features greater impact strength than our standard ABS. It can also be used in medical applications, including gamma-ray sterilization.  
- ULTEM 9085TM (our newest material) is a strong, light weight, flame and chemically resistant thermoplastic material that is frequently used in aerospace, automotive and military applications. 

----

| - Boeing    
- BMW   
- Cessna Aircraft    
- Dell    
- Ford Motor Company    
- Graco   
- Harley Davidson   
- Hewlett Packard   
- Honda | - Hyundai   
- Intel    
- Lego    
- Lever    
- Lockheed Martin    
- Medtronic-Sofamar Danek    
- Mitsubishi Electronics   
- NASA   
- Nike | - Pioneer Speaker   
- St. Jude Medical   
- Toro   
- Toyota   
- University of Texas   
- University of Wisconsin - Madison   
- US Army Depots   
- US Navy Fleet Readiness Center   
- Xerox |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - Web-based marketing   
- Trade magazine articles   
- Brochures   
- Websites   
- Internet blogs   
- Press releases   
- Industry associations | - Print advertisements   
- Direct mailings   
- Trade show demonstrations   
- Social media   
- Broadcast e-mail   
- Webinars   
- Internet search engines |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

| - Stratasys  
- Stratasys, Inc.  
- Shell Design  
- QuickSlice  
- Xpress 3D | - Dimension BST  
- uPrint  
- Build FDM  
- Fortus  
- Real & Design | - Dimension SST  
- Catalyst  
- Dimension  
- Redeye RPM  
- Fortus |
|---------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------|

| - FDM Maxum  
- BASS  
- InSight  
- Fortus 200mc  
- Prodigy Plus  
- WaveWash | - FDM Titan  
- WaterWorks  
- Touchworks  
- Fortus 360mc  
- Prodigy  
- Ecoworks | - SupportWorks  
- FDM Quantum  
- Fortus 900mc  
- Fortus 400mc  
- Genisys  
- Dimension Elite |
|----------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|

| - Stratasys.com  
- BuildFDM.com  
- 3Dprinter.com  
- Paidparts.com | - Dimensionprinting.com  
- 3D-fax.com  
- Stratasysdimension.com  
- Xpress3D.com | - RedEyeRPM.com  
- DimensionDirect.com  
- Fortus.com  
- RedEyeonDemand.com |
|-------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------|

----

- the ability to be used in an office environment  
- the availability of multiple production-grade modeling materials  
- a one-step modeling process  
- low acquisition price  
- ease of use  
- automatic hands free support removal  
- higher reliability 

----

- regulations promulgated by federal and state environmental and health agencies  
- the federal Occupational Safety and Health Administration  
- laws pertaining to the hiring, treatment, safety and discharge of employees  
- export control regulations for U.S. made products  
- CE regulations for the European market 

----

----

----

- Fluctuations in foreign currency exchange rates.  
- The inability to protect our intellectual property in foreign countries.  
- Political or economic instability in regions where we sell our products.  
- Changes in foreign regulatory requirements.  
- Seasonal fluctuations in business activity in certain countries.  
- Changes in export controls and tariffs.  
- Energy costs.  
- Public health issues.  
- Unrest in the Middle East. 

----

- changes in the pricing of HP products sales;  
- changes in the volume of systems sold through HP and the impact on revenues and margins;  
- changes in the amount that we spend to develop, acquire or license new products, consumables, technologies or businesses;  
- changes in the amount we spend to promote our products and services;  
- changes in the cost of satisfying our warranty obligations and servicing our installed base of systems;  
- delays between our expenditures to develop and market new or enhanced systems and consumables and the generation of sales from those products;  
- development of new competitive systems by others;  
- changes in accounting rules and tax laws;  
- the mix of high-performance systems, 3D printers and consumables that we sell during any period;  
- the geographic distribution of our sales;  
- our responses to price competition;  
- market acceptance of our products;  
- general economic and industry conditions that affect customer demand;  
- changes in interest rates that affect returns on our cash balances and short-term investments;  
- failure of a development partner to continue supporting certain product development efforts it is funding; and  
- our level of research and development activities. 

----

- investors’ expectations of the impact of our OEM agreement with HP and how the relationship with HP could change over time;  
- the volatile global economy;  
- actual or anticipated variations in quarterly or annual operating results;  
- the issuance of patents or other technological innovations;  
- announcements of new products;  
- our competitors' announcements of new products;  
- changes in financial estimates or recommendations by securities analysts;  
- the employment and termination of key personnel; and  
- sales or repurchases of our common stock by our Company 

----

- We may have difficulty transitioning customers and other business relationships to Stratasys.  
- We may have problems unifying management following a transaction.  
- We may lose key employees from our existing or acquired businesses.  
- We may experience intensified competition from other companies seeking to expand sales and market share during the integration period.  
- Our management’s attention may be diverted to the assimilation of the technology and personnel of acquired businesses or new product or service lines.  
- We may experience difficulties in coordinating geographically disparate organizations and corporate cultures and integrating management personnel with different business backgrounds. 

----

----

----

|                                                                           |       | High                                  |       | Low    |
|--------------------------------------------------------------------------------|--------------------------------|---------------------------------------|--------------------------------|--------|
|                                                                           |                           | Closing Sale Prices                   |
| Fiscal Year Ended December 31, 2009                                            |                           |                                  |                           |   |   |   |
|        January 1, 2009 – March 31, 2009    |                           | $       | 12.70                          |   | $       | 7.70 |
|        April 1, 2009 – June 30, 2009       |                           |                                  | 13.94                          |   |   | 8.60 |
|        July 1, 2009 – September 30, 2009   |                           |                                  | 17.21                          |   |   | 10.32 |
|        October 1, 2009 – December 31, 2009 |                           |                                  | 18.98                          |   |   | 14.85 |
|                                                                           |                           |                                  |                           |   |   |   |
| Fiscal Year Ended December 31, 2010                                            |                           |                                  |                           |   |   |   |
|        January 1, 2010 – March 31, 2010    |                           | $                                     | 30.11                          |   | $ | 17.35 |
|        April 1, 2010 – June 30, 2010       |                           |                                  | 27.40                          |   |   | 21.79 |
|        July 1, 2010 – September 30, 2010   |                           |                                  | 27.84                          |   |   | 20.81 |
|        October 1, 2010 – December 31, 2010 |                           |                                  | 34.87                          |   |   | 26.48 |

----

----

|                                             |                           | Years Ended December 31,                 |
|--------------------------------------------------|--------------------------------|------------------------------------------|
|                                             |                           | (In Thousands, Except Per Share Amounts) |
|                                             |       | 2010                                     |       | 2009 |       | 2008 |       | 2007 |       | 2006 |
| Statement of Operations Data:                    |                           |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                                        |                           | $                                        | 117,099 |   | $ | 98,356 |   | $ | 124,495 |   | $ | 112,243 |   | $ | 103,809 |
| Gross profit                                     |                           |                                     | 56,086 |   |   | 46,384 |   |   | 66,412 |   |   | 59,708 |   |   | 51,441 |
| Research and development                         |                           |                                     | 9,755 |   |   | 7,737 |   |   | 8,973 |   |   | 7,465 |   |   | 6,699 |
| Selling, general and administrative              |                           |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        expenses    |                           |                                     | 32,863 |   |   | 32,823 |   |   | 36,843 |   |   | 33,770 |   |   | 29,105 |
| Operating income                                 |                           |                                     | 13,467 |   |   | 5,824 |   |   | 20,596 |   |   | 18,473 |   |   | 15,637 |
| Net income                                       |                           |                                     | 9,370 |   |   | 4,116 |   |   | 13,615 |   |   | 14,324 |   |   | 11,164 |
| Net income per basic common share                |                           |                                     | 0.46 |   |   | 0.20 |   |   | 0.66 |   |   | 0.69 |   |   | 0.55 |
| Weighted average basic shares                    |                           |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        outstanding |                           |                                     | 20,579 |   |   | 20,236 |   |   | 20,676 |   |   | 20,772 |   |   | 20,240 |
| Net income per diluted common                    |                           |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        share       |                           | $                                        | 0.44 |   | $ | 0.20 |   | $ | 0.65 |   | $ | 0.66 |   | $ | 0.54 |
| Weighted average diluted shares                  |                           |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        outstanding |                           |                                     | 21,130 |   |   | 20,268 |   |   | 21,079 |   |   | 21,567 |   |   | 20,723 |
| Balance Sheet Data:                              |                           |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Working capital                                  |                           | $                                        | 58,243 |   | $ | 82,838 |   | $ | 63,296 |   | $ | 64,100 |   | $ | 55,311 |
| Total assets                                     |                           |                                     |        178,460 |   |   |        153,137 |   |   |        147,743 |   |   |        148,757 |   |   |        118,004 |
| Long term debt                                   |                           |                                     | --- |   |   | --- |   |   | --- |   |   | --- |   |   | --- |
| Stockholders’ equity                       |                           |                                     | 152,282 |   |   | 129,583 |   |   | 122,562 |   |   | 123,834 |   |   | 97,792 |

----

- Expanding the distribution channel for our Dimension products.  In January 2010, we signed a Master Original Equipment Manufacturer Agreement (the “OEM Agreement”) with Hewlett-Packard Company (“HP”) to develop and manufacture an HP-branded 3D printer. During the initial term of the OEM Agreement, which expires September 30, 2011, we are manufacturing a line of FDM (“Fused Deposition Modeling”) 3D printers and related accessories and consumables exclusively for HP for resale under the HP DesignJet brand in France, Germany, Italy, Spain and the United Kingdom. Shipments of the HP-branded 3D printer and related products commenced in March 2010.  HP has agreed not to sell 3D printers manufactured by any other companies, including HP, throughout the world for the term of the OEM Agreement. The term of the OEM Agreement will be extended for additional one-year periods unless the agreement is terminated on advance notice by either party. During the term of the OEM Agreement, we have agreed not to sell comparable products covered by the OEM Agreement directly or indirectly in the territory covered by the OEM Agreement. The OEM Agreement does not require HP to purchase any minimum quantity of products.  After the initial term, or by mutual agreement, the territory in which HP will have the exclusive right to sell the 3D printers covered by the OEM Agreement may be expanded to additional countries worldwide. Ultimately, our mutual intention is for HP to sell our 3D printers globally. 

----

- Expand our market position in the 3D printing market by introducing new products.  In January 2010, we expanded the Dimension uPrint product line by introducing the uPrint Plus. This system offers the same small footprint as the previously introduced uPrint but offers a 33% larger build envelop. It also allows the user to print in seven additional colors and offers two resolution settings. Concurrent with the launch of the uPrint Plus, we introduced two support-material enhancements. The first, Smart Supports, is a software feature that can reduce support material usage by up to 40%. The second is a new soluble support material called SR-30, which can dissolve 69% faster than the previous soluble support material.  
- Expand our position in the RP and DDM markets by developing new and improved proprietary products. We have built a leadership position in the RP and DDM markets by helping customers build stable, strong, and durable parts for testing and end-use. Our Fortus 3D Production Systems are ideally suited for DDM applications such as the production of manufacturing tools and low-volume end-use parts. We plan to expand our presence in this area by offering improved system capabilities and new and improved material properties. We also continued to collaborate with a Fortune 500 global manufacturing company to advance our proprietary FDM technology for direct digital manufacturing applications and will maintain this collaboration into 2011 for the sixth consecutive year.  
- Leverage our recent ISO 9001:2008 certification. During 2010, we worked to refine and improve our internal processes and documentation in order to obtain ISO 9001:2008 certification, a standard published by the International Organization for Standardization. In February 2011, we obtained the ISO 9001:2008 certification by maintaining a highly developed quality management system and continually improving its effectiveness in accordance with the ISO requirements. We believe that ISO certification is a key requirement in expanding our products’ applicability to the RP and DDM markets that we are focusing on such as aerospace, defense, medical, and automotive. We will use this registration to demonstrate our ability to consistently provide products that meet customer and applicable regulatory requirements and enhance customer satisfaction through its effective application.  
- Expand our RedEye paid parts service. We believe this is a fragmented global market dominated by a few large and numerous small companies. Sales from our RedEye paid parts service have improved during 2010. This growth has been driven in part by customers that do not have an FDM system but has also come from current system users that have had short-term capacity constraints on their own FDM systems. We believe that another part of this sales growth has come from the rising demand for our technology in DDM applications because of the production grade thermoplastics used. To take advantage of the growth we see in our DDM customer base, we are adding staff to our existing sales force that will focus exclusively on large strategic accounts. 

----

| For the twelve months ended December 31, |       | 2010                                       |       | 2009   |                   | 2008 |
|------------------------------------------|--------------------------------|--------------------------------------------|--------------------------------|--------|--------------------------------------------|------|
| Net sales                                |                           |        100.0 | %                              |   |        100.0 | %    |   |        100.0 | % |
| Cost of sales                            |                           | 52.1                                       | %                              |   | 52.8                                       | %    |   | 46.7 | % |
| Gross profit                             |                           | 47.9                                       | %                              |   | 47.2                                       | %    |   | 53.3 | % |
| Research & development               |                           | 8.3                                        | %                              |   | 7.9                                        | %    |   | 7.2 | % |
| Selling, general and administrative      |                           | 28.1                                       | %                              |   | 33.4                                       | %    |   | 29.6 | % |
| Operating income                         |                           | 11.5                                       | %                              |   | 5.9                                        | %    |   | 16.5 | % |
| Other income (expense)                   |                           | 0.3                                        | %                              |   | 0.4                                        | %    |   | 0.1 | % |
| Income before taxes                      |                           | 11.8                                       | %                              |   | 6.3                                        | %    |   | 16.7 | % |
| Income taxes                             |                           | 3.8                                        | %                              |   | 2.1                                        | %    |   | 5.7 | % |
| Net income                               |                           | 8.0                                        | %                              |   | 4.2                                        | %    |   | 10.9 | % |

----

|                  |                           |   |                                         | Year-over-  |                           |                                                                                |                           | Year-over-  |                           |                                        |
|-----------------------|--------------------------------|--------|----------------------------------------------|-------------|--------------------------------|-------------------------------------------------------------------------------------|--------------------------------|-------------|--------------------------------|---------------------------------------------|
|                  |       | 2010   |                     | Year Change |       | 2009                                                                                |       | Year Change |       | 2008                                        |
| Products              |                           | $      | 96,722                                       |        |                           |               32.1 | %                              |        | $                              | 73,210                                      |   |               -26.0 | % |   | $ | 98,969 |
| Services              |                           |   | 25,365                                       |        |                           | 0.9                                                                                 | %                              |        |                           | 25,146                                      |   | -1.5 | % |   |   | 25,526 |
| Fair value of warrant |                           |   | (4,988                                       | )           |                           | -                                                                                   |                           |        |                           | -                                           |   | - |   |   |   | - |
|                  |                           | $      |        117,099 |        |                           |    19.1                                                                   | %                              |        | $                              |        98,356 |   | -21.0 | % |   | $ |        124,495 |
|                  |

|          |                           |   |                           |                                                 |                           |   | Year-over-                                                                          |        |                           |   | Year-over- |                                             |   |
|---------------|--------------------------------|--------|--------------------------------|------------------------------------------------------|--------------------------------|--------|-------------------------------------------------------------------------------------|-------------|--------------------------------|--------|------------|--------------------------------------------------|--------|
|          |       | 2010   |       | Year Change                                          |       | 2009   |                                                            | Year Change |       | 2008   |
| North America |                           | $      | 65,139                         | 53                                                   | %                              |   |               18.1 | %           |                           | $      | 55,156     |                                             | 56     | % |   |               -17.3 | % |   | $ | 66,698 |   | 54 | % |
| Europe        |                           |   | 34,362                         | 28                                                   | %                              |   | 30.6                                                                                | %           |                           |   | 26,309     |                                             | 27     | % |   | -29.7 | % |   |   | 37,430 |   | 30 | % |
| Asia Pacific  |                           |   | 20,536                         | 17                                                   | %                              |   | 29.9                                                                                | %           |                           |   | 15,814     |                                             | 16     | % |   | -14.7 | % |   |   | 18,534 |   | 15 | % |
| Other         |                           |   | 2,050                          | 2                                                    | %                              |   | 90.3                                                                                | %           |                           |   | 1,077      |                                             | 1      | % |   | -41.2 | % |   |   | 1,833 |   | 1 | % |
|          |                           | $      | 122,087                        |          100 | %                              |   | 24.1                                                                                | %           |                           | $      | 98,356     |          | 100    | % |   | -21.0 | % |   | $ | 124,495 |          | 100 | % |
|          |

----

|                                          |                           |   |                                        | Year-over-  |                           |                                                                                |                           | Year-over-  |                           |                                        |   |   |
|-----------------------------------------------|--------------------------------|--------|---------------------------------------------|-------------|--------------------------------|-------------------------------------------------------------------------------------|--------------------------------|-------------|--------------------------------|---------------------------------------------|--------|--------|
|                                          |       | 2010   |                    | Year Change |       | 2009                                                                                |       | Year Change |       | 2008                                        |
| Products                                      |                           | $      | 47,109                                      |        |                           | 45.9                                                                                | %                              |        | $                              | 32,285                                      |   |   | -37.1 | % |   | $ | 51,297 |   |
| Services                                      |                           |   | 13,965                                      |        |                           | -1.0                                                                                | %                              |        |                           | 14,099                                      |   |   | -6.7 | % |   |   | 15,116 |   |
| Fair value of warrant                         |                           |   | (4,988                                      | )           |                           | -                                                                                   |                           |        |                           | -                                           |   |   | - |   |   |   | - |   |
|                                          |                           | $      |        56,086 |        |                           |               20.9 | %                              |        | $                              |        46,384 |   |   |               -30.2 | % |   | $ |        66,413 |   |
|                                          |                           |   |                                        |        |                           |                                                                                |                           |        |                           |                                        |   |   |
| Gross Profit as a Percentage of Related Sales |                           |   |                                        |        |                           |                                                                                |                           |        |                           |                                        |   |   |
| Products                                      |                           |   | 48.7                                        | %           |                           |                                                                                |                           |        |                           | 44.1                                        | %      |   |   |   |   |   | 51.8 | % |
| Services                                      |                           |   | 55.1                                        | %           |                           |                                                                                |                           |        |                           | 56.1                                        | %      |   |   |   |   |   | 59.2 | % |
| Total                                         |                           |   | 47.9                                        | %           |                           |                                                                                |                           |        |                           | 47.2                                        | %      |   |   |   |   |   | 53.3 | % |

----

|                                  |                           |   |                                        | Year-over-  |                           |                                                                                |                           | Year-over-  |                           |                                        |
|---------------------------------------|--------------------------------|--------|---------------------------------------------|-------------|--------------------------------|-------------------------------------------------------------------------------------|--------------------------------|-------------|--------------------------------|---------------------------------------------|
|                                  |       | 2010   |                    | Year Change |       | 2009                                                                                |       | Year Change |       | 2008                                        |
| Research and development              |                           | $      | 9,755                                       |        |                           |               26.1 | %                              |        | $                              | 7,737                                       |   |   |               -13.8 | % |   | $ | 8,973 |   |
| Selling, general & administrative |                           |   | 32,863                                      |        |                           | 0.1                                                                                 | %                              |        |                           | 32,823                                      |   |   | -10.9 | % |   |   | 36,843 |   |
|                                  |                           | $      |        42,618 |        |                           | 5.1                                                                                 | %                              |        | $                              |        40,560 |   |   | -11.5 | % |   | $ |        45,816 |   |
| Percentage of Sales                   |                           |   | 36.4                                        | %           |                           |                                                                                |                           |        |                           | 41.2                                        | % |   |   |   |   |   | 36.8 | % |

|                                    |                           | Employee-     |                                          | Contract     |                           |   |
|-----------------------------------------|--------------------------------|---------------|-----------------------------------------------|--------------|--------------------------------|--------|
|                                    |                           | Related Items |                                          | Terminations |                           |   |
|                                    |       | and Benefits  |                      | and Other    |       | Total  |
| Accrued balance as of December 31, 2008 |                           | $             | 306,014                                       |         |                           | $      | 66,881 |   |   | $ | 372,895 |   |
| Expenses incurred                       |                           |          | 779,000                                       |         |                           |   | - |   |   |   | 779,000 |   |
| Cash payments                           |                           |          | (810,707                                      | )            |                           |   |          (66,881 | ) |   |   | (877,588 | ) |
| Adjustments                             |                           |          |        (274,307 | )            |                           |   | - |   |   |   |        (274,307 | ) |
| Accrued balance as of December 31, 2009 |                           | $             | -                                             |         |                           | $      | - |   |   | $ | - |   |
|                                    |                           |          |                                          |         |                           |   |   |   |   |   |   |   |

----

|                |                           |   |                                        | Year-over-  |                           |                                                                                 |                           |        |                           | Year-over-                                 |   |   |                                                                                 |   |
|---------------------|--------------------------------|--------|---------------------------------------------|-------------|--------------------------------|--------------------------------------------------------------------------------------|--------------------------------|-------------|--------------------------------|--------------------------------------------|--------|--------|--------------------------------------------------------------------------------------|--------|
|                |       | 2010   |                    | Year Change |       | 2009                                                                                 |       | Year Change |       | 2008                                       |
| Operating income    |                           | $      |        13,467 |        |                           |               131.2 | %                              |        | $                              |        5,824 |   |   |               -71.7 | %      |   | $ |        20,596 |   |
| Percentage of Sales |                           |   | 11.5                                        | %           |                           |                                                                                 |                           |        |                           | 5.9                                        | %      |   |                                                                                 |   |   |   | 16.5 | % |

|                                     |                           |   |                                      |        |                           | Year-over-                                                               |                           |        |                           | Year-over-                                |   |   |
|------------------------------------------|--------------------------------|--------|-------------------------------------------|-------------|--------------------------------|--------------------------------------------------------------------------|--------------------------------|-------------|--------------------------------|-------------------------------------------|--------|--------|
|                                     |       | 2010   |                  | Year Change |       | 2009                                                                     |       | Year Change |       | 2008                                      |
| Interest income                          |                           | $      | 921                                       |        |                           | -7.0                                                                     | %                              |        | $                              | 990                                       |   |   | -51.4 | % |   | $ | 2,037 |   |
| Foreign currency transaction losses, net |                           |   |        (617 | )           |                           | 164.8                                                                    | %                              |        |                           | (233                                      | )      |   | -72.1 | % |   |   | (835 | ) |
| Other                                    |                           |   | 64                                        |        |                           |             116.1 | %                              |        |                           |        (398 | )      |   | 62.6 | % |   |   |        (1,065 | ) |
|                                     |                           | $      | 368                                       |        |                           | 2.5                                                                      | %                              |        | $                              | 359                                       |   |   |               162.0 | % |   | $ | 137 |   |
| Percentage of Sales                      |                           |   | 0.3                                       | %           |                           |                                                                     |                           |        |                           | 0.4                                       | %      |   |   |   |   |   | 0.1 | % |

----

|                       |                           |   |                                       |        | Year-over-                     |                                                                                 |                           |        |                           |                                       | Year-over- |   |                                                                                 |
|----------------------------|--------------------------------|--------|--------------------------------------------|-------------|--------------------------------|--------------------------------------------------------------------------------------|--------------------------------|-------------|--------------------------------|--------------------------------------------|------------|--------|--------------------------------------------------------------------------------------|
|                       |       | 2010   |                   | Year Change |       | 2009                                                                                 |       | Year Change |       | 2008                                       |
| Income taxes               |                           | $      |        4,466 |        |                           |               116.2 | %                              |        | $                              |        2,066 |       |   |               -71.0 | % |   | $ |        7,118 |   |
| As a percent of            |                           |   |                                       |        |                           |                                                                                 |                           |        |                           |                                       |       |   |                                                                                 |   |   |   |   |   |
| income before income taxes |                           |   | 32.3                                       | %           |                           |                                                                                 |                           |        |                           | 33.4                                       | %          |   |                                                                                 |   |   |   | 34.3 | % |

| 2010 Effective income tax rate                               |       | 32.3                                            | %  |
|--------------------------------------------------------------|--------------------------------|-------------------------------------------------|----|
| 2010 percentage decrease in research and development credits |                           | (3.0                                            | %) |
| 2010 percentage decrease in tax contingency reserve          |                           | 1.1                                             | %  |
| 2010 percentage increase in manufacturing deduction          |                           | 1.5                                             | %  |
| Other, net                                                   |                           | 1.5                                             | %  |
| 2009 Effective income tax rate                               |                           | 33.4                                            | %  |
| 2009 percentage increase in research and development credits |                           | 2.8                                             | %  |
| 2009 percentage increase in tax contingency reserve          |                           | (1.5                                            | %) |
| Other, net                                                   |                           | (0.4                                            | %) |
| 2008 Effective income tax rate                               |                           |         34.3 | %  |
|                                                         |

|                |                           |   |                                       |        |                           | Year-over-                                                                           |                           |        |                           |                                       |   | Year-over- |                                                                                 |   |   |   |
|---------------------|--------------------------------|--------|--------------------------------------------|-------------|--------------------------------|--------------------------------------------------------------------------------------|--------------------------------|-------------|--------------------------------|--------------------------------------------|--------|------------|--------------------------------------------------------------------------------------|--------|--------|--------|
|                |       | 2010   |                   | Year Change |       | 2009                                                                                 |       | Year Change |       | 2008                                       |
| Net income          |                           | $      |        9,370 |        |                           |               127.6 | %                              |        | $                              |        4,116 |   |       |               -69.8 | %      |   | $      |        13,615 |   |
| Percentage of Sales |                           |   | 8.0                                        | %           |                           |                                                                                 |                           |        |                           | 4.2                                        | %      |       |                                                                                 |   |   |   | 10.9 | % |

----

|                                                           |       | 2010   |                          | 2009   |       | 2008   |
|----------------------------------------------------------------|--------------------------------|--------|---------------------------------------------------|--------|--------------------------------|--------|
| Net income                                                     |                           | $      | 9,370                                             |   |                           | $      | 4,116 |   |   | $ | 13,615 |   |
| Depreciation and amortization                                  |                           |   | 9,342                                             |   |                           |   | 8,256 |   |   |   | 7,004 |   |
| Stock-based compensation                                       |                           |   | 1,242                                             |   |                           |   | 1,137 |   |   |   | 1,322 |   |
| Fair value of warrant related to OEM agreement                 |                           |   | 4,988                                             |   |                           |   | - |   |   |   | - |   |
| Change in working capital and other                            |                           |   | (456                                              | )      |                           |   | 11,981 |   |   |   | (7,450 | ) |
| Net cash provided by operating and other activities            |                           |   | 24,486                                            |   |                           |   | 25,490 |   |   |   | 14,491 |   |
| Net cash provided by (used in) investing activities            |                           |   | (49,294                                           | )      |                           |   | (6,831 | ) |   |   | 13,290 |   |
| Net cash provided by (used in) financing activities            |                           |   | 4,266                                             |   |                           |   | 1,583 |   |   |   | (15,856 | ) |
| Effect of exchange rate changes on cash                        |                           |   | (219                                              | )      |                           |   | 128 |   |   |   | (191 | ) |
| Net increase (decrease) in cash and cash equivalents |                           |   | (20,761                                           | )      |                           |   | 20,370 |   |   |   | 11,734 |   |
| Cash and cash equivalents, beginning of year                   |                           |   | 48,316                                            |   |                           |   | 27,946 |   |   |   | 16,212 |   |
| Cash and cash equivalents, end of year                         |                           | $      |         27,555 |   |                           | $      |         48,316 |   |   | $ |         27,946 |   |
|                                                           |

----

- approximately $57.1 million in bonds maturing between June 2011 and November 2013, all of which had ratings between AAA and A3 at December 31, 2010;  
- approximately $2.0 million in certificates of deposit maturing in February 2011.   
- approximately $2.2 million of a tax-free ARS, which re-prices approximately every 35 days. The ARS had a rating of A1 at December 31, 2010; and   
- approximately $1.2 million of a tax-free ARS, which does not currently have an active trading market and matures in February 2042. This ARS had a rating of Caa3 at December 31, 2010 and is further explained below. 

----

- for improvements to our facilities;  
- for the continuation of our leasing program;  
- for working capital purposes;  
- for information systems and infrastructure enhancements;  
- for new product and materials development;  
- for sustaining engineering;  
- for the acquisition of equipment, including production equipment, tooling, and computers;  
- for the purchase or development of intangible assets, including patents;  
- for increased selling and marketing activities, especially as they relate to the continued market and channel development;  
- for acquisitions and/or strategic alliances; and  
- for our common stock buyback program. 

| Year ending December 31, |       | Facilities |                 | Inventory |       | Total                                       |
|--------------------------|--------------------------------|------------|------------------------------------------|-----------|--------------------------------|---------------------------------------------|
| 2011                     |                           | $          | 544                                      |      | $                              | 22,500                                      |   | $ | 23,044 |
| 2012                     |                           |       | 211                                      |      |                           | -                                           |   |   | 211 |
| 2013                     |                           |       | 65                                       |      |                           | -                                           |   |   | 65 |
| 2014                     |                           |       | 1                                        |      |                           | -                                           |   |   | 1 |
|                     |                           | $          |        820 |      | $                              |        22,500 |   | $ |        23,320 |
|                     |

----

----

----

|           | RP technology                          | 11 years |
|--------------------------------------------------------|----------------------------------------|----------|
|                                                   | Capitalized software development costs | 3 years  |
|                                                   | Patents                                | 10 years |
|                                                   | Trademarks                             | 5 years  |

----

----

- continue to introduce new high-performance 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;  
- successfully develop the 3D printing market with our Dimension BST, Dimension SST, Dimension Elite, and uPrint systems, and that the market will accept these systems;  
- successfully develop the DDM market with our Fortus 360mc, 400mc and 900mc, and that the market will accept these systems;  
- maintain our revenues and gross margins on our present products;  
- control our operating expenses;  
- expand our manufacturing capabilities to meet the expected demand generated by our uPrint, Dimension BST, Dimension SST and Dimension Elite systems, our consumable products and our Paid Parts service and sales under our OEM Agreement with HP;  
- successfully commercialize new materials and gain market acceptance for these new materials; and  
- recruit, retain, and develop employees with the necessary skills to produce, create, commercialize, market, and sell our products. 

----

----

----

|         | 1.  | Financial Statements --                    |                                                                                                               |   |
|--------------------------------------------|----------|--------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                       |     |                                       |                                                                                                                                   |   |   |
|                                       |     |         | Management’s Report on Internal Control Over Financial Reporting                                                                 |   | F-3 |
|                                       |     |                                       |                                                                                                                                   |   |   |
|                                       |     |                                       | Reports of Independent Registered Public Accounting Firm                                                                               |   | F-4 to F-6 |
|                                       |     |                                       |                                                                                                                                   |   |   |
|                                       |     |                                       | Consolidated Balance Sheets December 31, 2010 and 2009                                                                                 |   | F-7 |
|                                       |     |                                       | Consolidated Statements of Operations Years Ended December 31, 2010, 2009 and 2008                                                     |   | F-8 |
|                                       |     |                                       | Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income Years Ended December 31, 2010, 2009 and 2008 |   | F-9 |
|                                       |     |                                       | Consolidated Statements of Cash Flows Years Ended December 31, 2010, 2009 and 2008                                                     |   | F-10 |
|                                       |     |                                       | Notes to Consolidated Financial Statements                                                                                             |   | F-11 to F-32 |
|                                       |     |                                       |                                                                                                                                   |   |   |
|                                       | 2.       | Financial Statement Schedule --            |                                                                                                                                   |   |
|                                       |     |                                       |                                                                                                                                   |   |   |
|                                       |     |                                       | Schedule II -- Valuation and Qualifying Accounts and Reserves                                                                          |   | F-33 |

----

----

| Management’s Report on Internal Controls over Financial Reporting                                                  |       | F-3       |
|--------------------------------------------------------------------------------------------------------------------------|--------------------------------|-----------|
|                                                                                                                     |                           |      |
| Reports of Independent Registered Public Accounting Firm                                                                 |                           | F-4-F-6   |
|                                                                                                                     |                           |      |
| Consolidated Financial Statements                                                                                        |                           |      |
|                                                                                                                     |                           |      |
|        Consolidated Balance Sheets                                                         |                           | F-7       |
|                                                                                                                     |                           |      |
|        Consolidated Statements of Operations                                               |                           | F-8       |
|                                                                                                                     |                           |      |
|        Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income |                           | F-9       |
|                                                                                                                     |                           |      |
|        Consolidated Statements of Cash Flows                                               |                           | F-10      |
|                                                                                                                     |                           |      |
|        Notes to Consolidated Financial Statements                                          |                           | F-11-F-32 |
|                                                                                                                     |                           |      |
| Schedule II - Valuation and Qualifying Accounts and Reserves                                                             |                           | F-33      |

----

| /s/ S. SCOTT CRUMP      |
|-------------------------|
| S. Scott Crump          |
| Chief Executive Officer |

| /s/ ROBERT F. GALLAGHER |
|-------------------------|
| Robert F. Gallagher     |
| Chief Financial Officer |

----

|                         | /s/ GRANT THORNTON LLP |   |
|------------------------------|------------------------|--------|
|                         |                   |   |
| Minneapolis, Minnesota  |                   |   |
| March 8, 2011                |                   |   |

----

----

|                         | /s/ GRANT THORNTON LLP |   |
|------------------------------|------------------------|--------|
|                         |                   |   |
| Minneapolis, Minnesota  |                   |   |
| March 8, 2011                |                   |   |

----

| Consolidated Balance Sheets                                                                                                                                                              |                           |                            |                           |   |   |                            |        |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|---------------------------------|--------------------------------|--------|--------|---------------------------------|-------------|--------|
|                                                                                                                                                                                     |                           |                            |                           |   |   |                            |        |   |
| December 31,                                                                                                                                                                             |       | 2010                            |       | 2009   |
| ASSETS                                                                                                                                                                                   |                           |                            |                           |   |   |                            |        |   |
| Current assets                                                                                                                                                                           |                           |                            |                           |   |   |                            |        |   |
|        Cash and cash equivalents                                                                                                                           |                           | $      | 27,554,411                     |   |   | $      | 48,315,926  |   |
|        Short-term investments - held to maturity                                                                                                           |                           |                            | 8,797,878                      |   |   |                            | 16,073,718  |   |
|        Accounts receivable, less allowance for doubtful                                                                                                    |                           |                            |                           |   |   |                            |        |   |
|                      accounts of $1,094,588 at December 31, 2010                     |                           |                            |                           |   |   |                            |        |   |
|                      and $903,101 at December 31, 2009                               |                           |                            | 20,051,451                     |   |   |                            | 19,249,813  |   |
|        Inventories                                                                                                                                         |                           |                            | 17,880,714                     |   |   |                            | 14,608,014  |   |
|        Net investment in sales-type leases, less allowance                                                                                                 |                           |                            |                           |   |   |                            |        |   |
|                      for doubtful accounts of $189,338 at December 31,               |                           |                            |                           |   |   |                            |        |   |
|                      2010 and $222,011 at December 31, 2009                          |                           |                            | 3,096,911                      |   |   |                            | 3,618,876   |   |
|        Prepaid expenses and other current assets                                                                                                           |                           |                            | 3,384,394                      |   |   |                            | 2,247,612   |   |
|        Deferred income taxes                                                                                                                               |                           |                            | 3,447,000                      |   |   |                            | 2,277,000   |   |
|               Total current assets                                                                                      |                           |                            | 84,212,759                     |   |   |                            | 106,390,959 |   |
| Property and equipment, net                                                                                                                                                              |                           |                            | 29,872,945                     |   |   |                            | 26,326,012  |   |
| Other assets                                                                                                                                                                             |                           |                            |                           |   |   |                            |        |   |
|        Intangible assets, net                                                                                                                              |                           |                            | 6,405,714                      |   |   |                            | 7,653,269   |   |
|        Net investment in sales-type leases                                                                                                                 |                           |                            | 3,067,446                      |   |   |                            | 3,477,039   |   |
|        Deferred income taxes                                                                                                                               |                           |                            | -                              |   |   |                            | 688,000     |   |
|        Long-term investments - available for sale                                                                                                          |                           |                            | 1,185,250                      |   |   |                            | 1,055,750   |   |
|        Long-term investments - held to maturity                                                                                                            |                           |                            | 52,504,650                     |   |   |                            | 5,467,318   |   |
|        Other non-current assets                                                                                                                            |                           |                            | 1,210,867                      |   |   |                            | 2,078,165   |   |
|               Total other assets                                                                                        |                           |                            | 64,373,927                     |   |   |                            | 20,419,541  |   |
| Total assets                                                                                                                                                                             |                           | $                               | 178,459,631                    |   |   | $                               | 153,136,512 |   |
|                                                                                                                                                                                     |                           |                            |                           |   |   |                            |        |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                     |                           |                            |                           |   |   |                            |        |   |
| Current liabilities                                                                                                                                                                      |                           |                            |                           |   |   |                            |        |   |
|        Accounts payable and other current liabilities                                                                                                      |                           | $                               | 14,408,628                     |   |   | $                               | 12,874,798  |   |
|        Unearned revenues                                                                                                                                   |                           |                            | 11,561,521                     |   |   |                            | 10,678,427  |   |
|               Total current liabilities                                                                                 |                           |                            | 25,970,149                     |   |   |                            | 23,553,225  |   |
| Non-current liabilities                                                                                                                                                                  |                           |                            |                           |   |   |                            |        |   |
|        Deferred tax liabilities                                                                                                                            |                           |                            | 207,000                        |   |   |                            | -           |   |
| Total liabilities                                                                                                                                                                        |                           |                            | 26,177,149                     |   |   |                            | 23,553,225  |   |
| Commitments and contingencies                                                                                                                                                            |                           |                            |                           |   |   |                            |        |   |
| Stockholders' equity                                                                                                                                                                     |                           |                            |                           |   |   |                            |        |   |
|        Common stock, $.01 par value, authorized 30,000,000 shares;                                                                                         |                           |                            |                           |   |   |                            |        |   |
|                      26,509,518 and 26,053,318 shares issued as of December 31, |                           |                            |                           |   |   |                            |        |   |
|                      2010 and 2009, respectively                                     |                           |                            | 265,095                        |   |   |                            | 260,533     |   |
|        Capital in excess of par value                                                                                                                      |                           |                            | 107,781,990                    |   |   |                            | 94,329,398  |   |
|        Retained earnings                                                                                                                                   |                           |                            | 83,385,484                     |   |   |                            | 74,015,940  |   |
|        Accumulated other comprehensive loss                                                                                                                |                           |                            | (145,662                       | )      |   |                            | (18,159     | )      |
|        Treasury stock at cost, 5,687,631 shares as of                                                                                                      |                           |                            |                           |   |   |                            |        |   |
|                      December 31, 2010 and 2009                                      |                           |                            | (39,004,425                    | )      |   |                            | (39,004,425 | )      |
|               Total stockholders' equity                                                                                |                           |                            | 152,282,482                    |   |   |                            | 129,583,287 |   |
| Total liabilities and stockholders' equity                                                                                                                                               |                           | $                               | 178,459,631                    |   |   | $                               | 153,136,512 |   |
|                                                                                                                                                                                     |                           |                            |                           |   |   |                            |        |   |

----

| Consolidated Statements of Operations                                               |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
|-------------------------------------------------------------------------------------|--------------------------------|---------------------------------|--------------------------------|--------|--------------------------------|---------------------------------|------------|--------|--------|---------------------------------|-------------|--------|
|                                                                                |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
| Years Ended December 31,                                                            |       | 2010                            |       | 2009   |       | 2008                            |
| Net sales                                                                           |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
|        Products                                       |                           | $      | 96,722,415                     |   |                           | $      | 73,210,550 |   |   | $      | 98,969,152  |   |
|        Services                                       |                           |                            | 25,364,673                     |   |                           |                            | 25,145,682 |   |   |                            | 25,525,860  |   |
|        Fair value of warrant related to OEM agreement |                           |                            | (4,987,806                     | )      |                           |                            | -          |   |   |                            | -           |   |
|                                                                                |                           |                            | 117,099,282                    |   |                           |                            | 98,356,232 |   |   |                            | 124,495,012 |   |
|                                                                                |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
| Cost of sales                                                                       |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
|        Products                                       |                           |                            | 49,613,957                     |   |                           |                            | 40,925,443 |   |   |                            | 47,672,443  |   |
|        Services                                       |                           |                            | 11,399,356                     |   |                           |                            | 11,047,217 |   |   |                            | 10,410,249  |   |
|                                                                                |                           |                            | 61,013,313                     |   |                           |                            | 51,972,660 |   |   |                            | 58,082,692  |   |
|                                                                                |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
| Gross profit                                                                        |                           |                            | 56,085,969                     |   |                           |                            | 46,383,572 |   |   |                            | 66,412,320  |   |
|                                                                                |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
| Operating expenses                                                                  |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
|        Research and development                       |                           |                            | 9,755,169                      |   |                           |                            | 7,737,125  |   |   |                            | 8,973,203   |   |
|        Selling, general and administrative            |                           |                            | 32,863,462                     |   |                           |                            | 32,822,727 |   |   |                            | 36,842,665  |   |
|                                                                                |                           |                            | 42,618,631                     |   |                           |                            | 40,559,852 |   |   |                            | 45,815,868  |   |
|                                                                                |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
| Operating income                                                                    |                           |                            | 13,467,338                     |   |                           |                            | 5,823,720  |   |   |                            | 20,596,452  |   |
|                                                                                |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
| Other income (expense)                                                              |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
|        Interest income, net                           |                           |                            | 921,088                        |   |                           |                            | 989,922    |   |   |                            | 2,037,257   |   |
|        Foreign currency transaction losses, net       |                           |                            | (617,174                       | )      |                           |                            | (232,767   | )      |   |                            | (834,762    | )      |
|        Other, net                                     |                           |                            | 64,086                         |   |                           |                            | (398,603   | )      |   |                            | (1,065,460  | )      |
|                                                                                |                           |                            | 368,000                        |   |                           |                            | 358,552    |   |   |                            | 137,035     |   |
|                                                                                |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
| Income before income taxes                                                          |                           |                            | 13,835,338                     |   |                           |                            | 6,182,272  |   |   |                            | 20,733,487  |   |
|        Income taxes                                   |                           |                            | 4,465,794                      |   |                           |                            | 2,066,001  |   |   |                            | 7,118,000   |   |
|                                                                                |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
| Net income                                                                          |                           | $                               | 9,369,544                      |   |                           | $                               | 4,116,271  |   |   | $                               | 13,615,487  |   |
|                                                                                |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
| Net income per common share                                                         |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
|        Basic                                          |                           | $                               | 0.46                           |   |                           | $                               | 0.20       |   |   | $                               | 0.66        |   |
|        Diluted                                        |                           |                            | 0.44                           |   |                           |                            | 0.20       |   |   |                            | 0.65        |   |
|                                                                                |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
| Weighted average commons shares outstanding                                         |                           |                            |                           |   |                           |                            |       |   |   |                            |        |   |
|        Basic                                          |                           |                            | 20,579,412                     |   |                           |                            | 20,235,747 |   |   |                            | 20,676,436  |   |
|        Diluted                                        |                           |                            | 21,129,533                     |   |                           |                            | 20,267,999 |   |   |                            | 21,079,265  |   |

----

| Years Ended December 31, 2010, 2009, and 2008                                      |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |
|------------------------------------------------------------------------------------|--------------------|--------------|--------------------|----------------------------|--------------------|-----------|----------------------------|-------------|--------------------|----------|----------------------------|---------------|--------------------|----------------------------------------------------|--------------------|--------|--------|----------------------------|-------------|--------|--------|----------------------------|-------------|--------|--------|----------------------------|
|                                                                               |               |         |               |                       |               |      |                       |        |               |     |                       |          |               | Accumulated                                        |               |   |   |                       |        |   |   |                       |        |   |   |                       |
|                                                                               |               |         |               |                       |               |      |                       |        |               |     |                       |          |               | Other                                              |               |   |   |                       |        |   |   |                       |        |   |   |                       |
|                                                                               |               |         |               |                       |               |      | Capital in                 |        |               |     |                       | Comprehensive |               |                                               |               |   |   | Total                      |        |   |   |                       |
|                                                                               |               | Common Stock |               | Excess of                  |               | Retained  |                       | Income      |               | Treasury |                       | Stockholders' |               | Comprehensive                                      |
|                                                                               |     | Shares       |     | Amount                     |     | Par Value |             | Earnings    |     | (Loss)   |             | Stock         |     | Equity                                             |     | Income |
| Balances, January 1, 2008                                                          |               | 25,610,654   |               | $      | 256,108            |      | $      | 87,023,541  |               |     | $      | 56,284,182    |               | $          | 172,073            |   |   | $      | (19,902,375 | )      |   | $      | 123,833,529 |   |   |                       |   |   |
| Exercise of stock options and warrants                                             |               | 298,949      |               |                       | 2,988              |      |                       | 3,224,060   |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       | 3,227,048   |   |   |                       |   |   |
| Income tax reductions relating to                                                  |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |   |   |
|        exercise of stock options                |               |         |               |                       |               |      |                       | 41,881      |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       | 41,881      |   |   |                       |   |   |
| Purchase of 1,087,575 shares of treasury stock                                     |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       | (19,102,050 | )      |   |                       | (19,102,050 | )      |   |                       |   |   |
| Stock based compensation                                                           |               |         |               |                       |               |      |                       | 1,321,596   |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       | 1,321,596   |   |   |                       |   |   |
| Net income                                                                         |               |         |               |                       |               |      |                       |        |               |     |                       | 13,615,487    |               |                                               |               |   |   |                       |        |   |   |                       | 13,615,487  |   |   | $      | 13,615,487 |   |
| Other comprehensive income (expense),                                              |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |   |   |
|        unrealized loss on securities            |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               | (128,000           | )      |   |                       |        |   |   |                       | (128,000    | )      |   |                       | (128,000 | ) |
|        foreign currency translation adjustment  |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               | (247,092           | )      |   |                       |        |   |   |                       | (247,092    | )      |   |                       | (247,092 | ) |
|                                                                               |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |   |   |
| Total comprehensive income                                                         |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   | $                          | 13,240,395 |   |
| Balances, December 31, 2008                                                        |               | 25,909,603   |               |                       | 259,096            |      |                       | 91,611,078  |               |     |                       | 69,899,669    |               |                                               | (203,019           | )      |   |                       | (39,004,425 | )      |   |                       | 122,562,399 |   |   |                       |   |   |
|                                                                               |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |   |   |
| Exercise of stock options and warrants                                             |               | 143,715      |               |                       | 1,437              |      |                       | 1,664,061   |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       | 1,665,498   |   |   |                       |   |   |
| Tax benefit shortfall relating to                                                  |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |   |   |
|        exercise of stock options                |               |         |               |                       |               |      |                       | (82,811     | )                  |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       | (82,811     | )      |   |                       |   |   |
| Stock based compensation                                                           |               |         |               |                       |               |      |                       | 1,137,070   |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       | 1,137,070   |   |   |                       |   |   |
| Net income                                                                         |               |         |               |                       |               |      |                       |        |               |     |                       | 4,116,271     |               |                                               |               |   |   |                       |        |   |   |                       | 4,116,271   |   |   | $                          | 4,116,271 |   |
| Other comprehensive income,                                                        |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |   |   |
|        unrealized loss on securities adjustment |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               | 26,500             |   |   |                       |        |   |   |                       | 26,500      |   |   |                       | 26,500 |   |
|        foreign currency translation adjustment  |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               | 158,360            |   |   |                       |        |   |   |                       | 158,360     |   |   |                       | 158,360 |   |
|                                                                               |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |   |   |
| Total comprehensive income                                                         |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   | $                          | 4,301,131 |   |
| Balances, December 31, 2009                                                        |               | 26,053,318   |               |                       | 260,533            |      |                       | 94,329,398  |               |     |                       | 74,015,940    |               |                                               | (18,159            | )      |   |                       | (39,004,425 | )      |   |                       | 129,583,287 |   |   |                       |   |   |
|                                                                               |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |   |   |
| Exercise of stock options and warrants                                             |               | 456,200      |               |                       | 4,562              |      |                       | 6,397,803   |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       | 6,402,365   |   |   |                       |   |   |
| Income tax reductions relating to                                                  |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |   |   |
|        exercise of stock options                |               |         |               |                       |               |      |                       | 2,961,412   |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       | 2,961,412   |   |   |                       |   |   |
| Vested stock option repurchase                                                     |               |         |               |                       |               |      |                       | (2,136,605  | )                  |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       | (2,136,605  | )      |   |                       |   |   |
| Stock based compensation                                                           |               |         |               |                       |               |      |                       | 1,242,176   |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       | 1,242,176   |   |   |                       |   |   |
| Fair value of warrant related to OEM agreement                                     |               |         |               |                       |               |      |                       | 4,987,806   |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       | 4,987,806   |   |   |                       |   |   |
| Net income                                                                         |               |         |               |                       |               |      |                       |        |               |     |                       | 9,369,544     |               |                                               |               |   |   |                       |        |   |   |                       | 9,369,544   |   |   | $                          | 9,369,544 |   |
| Other comprehensive income (expense),                                              |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |   |   |
|        unrealized gain on securities adjustment |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               | 101,500            |   |   |                       |        |   |   |                       | 101,500     |   |   |                       | 101,500 |   |
|        foreign currency translation adjustment  |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               | (229,003           | )      |   |                       |        |   |   |                       | (229,003    | )      |   |                       | (229,003 | ) |
|                                                                               |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |   |   |
| Total comprehensive income                                                         |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   | $                          | 9,242,041 |   |
| Balances, December 31, 2010                                                        |               | 26,509,518   |               | $                          | 265,095            |      | $                          | 107,781,990 |               |     | $                          | 83,385,484    |               | $                                                  | (145,662           | )      |   | $                          | (39,004,425 | )      |   | $                          | 152,282,482 |   |   |                       |   |   |
|                                                                               |               |         |               |                       |               |      |                       |        |               |     |                       |          |               |                                               |               |   |   |                       |        |   |   |                       |        |   |   |                       |   |   |

----

| Consolidated Statements of Cash Flows                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                         |
| Years ended December 31,                                                                                                                                     |       | 2010 |       | 2009 |       | 2008 |
| Cash flows from operating activities                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
|        Net income                                                                                                              |   | $ | 9,369,544 |   |   | $ | 4,116,271 |   |   | $ | 13,615,487 |   |
|        Adjustments to reconcile net income to                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
|                      net cash from operating activities: |   |   |   |   |   |   |   |   |   |   |   |   |
|        Deferred income taxes                                                                                              |   |   | (328,000 | ) |   |   | (1,431,000 | ) |   |   | (51,000 | ) |
|        Depreciation                                                                                                       |   |   | 6,360,290 |   |   |   | 5,827,113 |   |   |   | 4,810,237 |   |
|        Amortization                                                                                                       |   |   | 2,982,100 |   |   |   | 2,428,540 |   |   |   | 2,193,609 |   |
|        Stock-based compensation                                                                                           |   |   | 1,242,176 |   |   |   | 1,137,070 |   |   |   | 1,321,597 |   |
|        Fair value of warrant related to OEM agreement                                                                     |   |   | 4,987,806 |   |   |   |   |   |   |   |   |   |
|        Loss (gain) on disposal of property and equipment                                                                  |   |   | - |   |   |   | 314,414 |   |   |   | (61,784 | ) |
|        Loss on impairment of investment                                                                                   |   |   | - |   |   |   | 444,000 |   |   |   | 1,270,750 |   |
|                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
|        Increase (decrease) in cash attributable to changes in                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                      operating assets and liabilities:   |   |   |   |   |   |   |   |   |   |   |   |   |
|              Accounts receivable, net                                                       |   |   | (801,638 | ) |   |   | 7,289,920 |   |   |   | (233,037 | ) |
|              Inventories                                                                    |   |   | (5,367,062 | ) |   |   | 4,810,441 |   |   |   | (6,875,415 | ) |
|              Net investment in sales-type leases                                            |   |   | 931,558 |   |   |   | 1,320,534 |   |   |   | (1,057,814 | ) |
|              Prepaid expenses                                                               |   |   | (1,136,782 | ) |   |   | 360,468 |   |   |   | (100,764 | ) |
|              Other assets                                                                   |   |   | 867,298 |   |   |   | (119,951 | ) |   |   | (964 | ) |
|              Accounts payable and other current liabilities                                 |   |   | 4,495,241 |   |   |   | 1,079,560 |   |   |   | (2,121,903 | ) |
|              Unearned revenues                                                              |   |   | 883,094 |   |   |   | (2,086,969 | ) |   |   | 1,800,925 |   |
|              Excess tax benefit from stock options                                          |   |   | (2,514,551 | ) |   |   | - |   |   |   | (18,747 | ) |
| Net cash provided by operating activities                                                                                                                    |   |   | 21,971,074 |   |   |   | 25,490,411 |   |   |   | 14,491,177 |   |
|                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash flows from investing activities                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
|           Proceeds from sale of investments                                                                |   |   | 27,728,403 |   |   |   | 7,022,607 |   |   |   | 23,875,909 |   |
|           Purchase of investments                                                                          |   |   | (67,911,812 | ) |   |   | (9,920,000 | ) |   |   | - |   |
|           Proceeds from sale of property and equipment                                                     |   |   | - |   |   |   | 38,445 |   |   |   | 315,726 |   |
|           Acquisition of property and equipment                                                            |   |   | (7,822,873 | ) |   |   | (2,284,676 | ) |   |   | (8,494,145 | ) |
|           Acquisition of intangible and other assets                                                       |   |   | (1,287,627 | ) |   |   | (1,687,126 | ) |   |   | (2,407,221 | ) |
| Net cash provided by (used in) investing activities                                                                                                          |   |   | (49,293,909 | ) |   |   | (6,830,750 | ) |   |   | 13,290,269 |   |
|                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash flows from financing activities                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
|           Proceeds from exercise of stock options and warrants                                             |   |   | 6,402,365 |   |   |   | 1,582,687 |   |   |   | 3,229,259 |   |
|           Cash paid for vested stock option repurchases                                                    |   |   | (2,136,605 | ) |   |   | - |   |   |   | - |   |
|           Excess tax benefit from stock options                                                            |   |   | 2,514,551 |   |   |   | - |   |   |   | 18,747 |   |
|           Purchase of treasury stock                                                                       |   |   | - |   |   |   | - |   |   |   | (19,104,261 | ) |
| Net cash provided by (used in) financing activities                                                                                                          |   |   | 6,780,311 |   |   |   | 1,582,687 |   |   |   | (15,856,255 | ) |
|                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Effect of exchange rate changes on cash                                                                                                                      |   |   | (218,991 | ) |   |   | 127,779 |   |   |   | (191,163 | ) |
|                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Net increase (decrease) in cash and cash equivalents                                                                                                         |   |   | (20,761,515 | ) |   |   | 20,370,127 |   |   |   | 11,734,028 |   |
| Cash and cash equivalents, beginning of year                                                                                                                 |   |   | 48,315,926 |   |   |   | 27,945,799 |   |   |   | 16,211,771 |   |
|                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents, end of year                                                                                                                       |   | $ | 27,554,411 |   |   | $ | 48,315,926 |   |   | $ | 27,945,799 |   |
|                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
|        Cash paid for taxes                                                                                                |   | $      | 5,026,953 |   |   | $      | 626,407 |   |   | $      | 8,133,189 |   |
|        Transfer of fixed assets to inventory                                                                              |   |   | 242,111 |   |   |   | 245,329 |   |   |   | 242,701 |   |
|        Transfer of inventory to fixed assets                                                                              |   |   | 2,336,473 |   |   |   | 716,225 |   |   |   | 3,118,720 |   |

----

----

|   | RP technology                          | 11 years |
|--------|----------------------------------------|----------|
|   | Capitalized software development costs | 3 years  |
|   | Patents                                | 10 years |
|   | Trademarks                             | 5 years  |

----

----

----

----

----

|                                                  |       | 2010                            |       | 2009   |
|-------------------------------------------------------|--------------------------------|---------------------------------|--------------------------------|--------|
| Bonds                                                 |                           | $      | 6,837,521                      |   | $      | 8,113,361 |
| Other securities                                      |                           |                            | 357                            |   |   | 357 |
| Certificates of deposit                               |                           |                            | 1,960,000                      |   |   | 7,960,000 |
| Short-term investments - held to maturity             |                           |                            | 8,797,878                      |   |   | 16,073,718 |
|                                                  |                           |                            |                           |   |   |   |
| Auction rate securities                               |                           |                            | 1,185,250                      |   |   | 1,055,750 |
| Long-term investments - available for sale securities |                           |                            | 1,185,250                      |   |   | 1,055,750 |
|                                                  |                           |                            |                           |   |   |   |
| Auction rate securities                               |                           |                            | 2,200,000                      |   |   | 2,400,000 |
| Bonds                                                 |                           |                            | 50,304,650                     |   |   | 1,107,318 |
| Certificates of deposit                               |                           |                            | -                              |   |   | 1,960,000 |
| Long-term investments - held to maturity              |                           |                            | 52,504,650                     |   |   | 5,467,318 |
|                                                  |                           |                            |                           |   |   |   |
| Total investments                                     |                           | $                               | 62,487,778                     |   | $ | 22,596,786 |
|                                                  |                           |                            |                           |   |   |   |

- approximately $57.1 million in bonds maturing between June 2011 and November 2013, all of which have ratings between AAA and A3 at December 31, 2010;  
- approximately $2.0 million in certificates of deposit maturing in February 2011.  
- approximately $2.2 million of a tax-free ARS, which re-prices approximately every 35 days. The ARS had a rating of A1 at December 31, 2010; and  
- approximately $1.2 million of a tax-free ARS, which does not currently have an active trading market and matures in February 2042. This ARS had a rating of Caa3 at December 31, 2010 and is further explained below. 

----

| Face value of investment as of December 31, 2007                              |       | $                               | 2,600,000  |   |
|-------------------------------------------------------------------------------|--------------------------------|---------------------------------|------------|--------|
| Principal payment                                                             |                           |                            | (25,000    | )      |
| Temporary impairment - recognized in other comprehensive income               |                           |                            | (195,000   | )      |
| Other-than-temporary impairment - recognized in other income                  |                           |                            | (1,270,750 | )      |
| Net carrying value at December 31, 2008                                       |                           |                            | 1,109,250  |   |
|                                                                          |                           |                            |       |   |
| Temporary impairment transferred to other-than-temporary impairment           |                           |                            | 40,500     |   |
| Other-than-temporary impairment - recognized in other income                  |                           |                            | (94,000    | )      |
| Net carrying value at December 31, 2009                                       |                           |                            | 1,055,750  |   |
|                                                                          |                           |                            |       |   |
| Principal payment                                                             |                           |                            | (25,000    | )      |
| Adjustment to temporary impairment - recognized in other comprehensive income |                           |                            | 154,500    |   |
| Net carrying value at December 31, 2010                                       |                           | $      | 1,185,250  |   |

|           |       | 2010                            |       | 2009   |
|----------------|--------------------------------|---------------------------------|--------------------------------|--------|
| Finished goods |                           | $                               | 7,045,840                      |   | $ | 6,288,314 |
| Raw materials  |                           |                            | 10,834,874                     |   |   | 8,319,700 |
|           |                           | $      | 17,880,714                     |   | $      | 14,608,014 |
|           |                           |                            |                           |   |   |   |

|                                        |       | 2010                            |       | 2009   |
|---------------------------------------------|--------------------------------|---------------------------------|--------------------------------|--------|
| Future minimum lease payments receivable    |                           | $                               | 6,691,118                      |   |   | $ | 7,713,133 |   |
| Less allowance for doubtful accounts        |                           |                            | (189,338                       | )      |   |   | (222,011 | ) |
| Net future minimum lease payment receivable |                           |                            | 6,501,780                      |   |   |   | 7,491,122 |   |
| Less unearned interest income               |                           |                            | (337,423                       | )      |   |   | (395,207 | ) |
| Net investment in sales-type leases         |                           | $      | 6,164,357                      |   |   | $      | 7,095,915 |   |
|                                        |                           |                            |                           |   |   |   |   |   |

| Year ending December 31, |   |                            |      |
|--------------------------|--------|---------------------------------|-----------|
| 2011                     |   | $      | 3,464,982 |
| 2012                     |   |                            | 1,532,171 |
| 2013                     |   |                            | 1,017,402 |
| 2014                     |   |                            | 510,694   |
| 2015                     |   |                            | 165,869   |
|                     |   | $                               | 6,691,118 |
|                     |   |                            |      |

----

- The objective is to provide additional information on the credit risk exposure; however, in addition to the minimal amount of receivables at risk, the nature of the credit risk associated with the Company’s lease receivables is reduced by the credit process, which requires a review of the lessee’s financial statements and current financial standing prior to the commencement of a lease agreement.  
- Segmenting the lease portfolio by level of credit risk or class, which is required by ASU 2010-20, would not be practical due to the consistent nature of the lease receivables.  
- A rollforward of the allowance would provide minimal value as the allowance for doubtful accounts is less than 3% of lease receivables and has not materially increased or decreased between 2009 and 2010. 

|                                      |       | 2010                            |       | 2009   |
|-------------------------------------------|--------------------------------|---------------------------------|--------------------------------|--------|
| Machinery and equipment                   |                           | $      | 26,333,224                     |   |   | $      | 23,933,169 |   |
| Building and improvements                 |                           |                            | 13,987,226                     |   |   |   | 11,780,928 |   |
| Computer equipment and software           |                           |                            | 10,868,317                     |   |   |   | 10,305,828 |   |
| Office equipment                          |                           |                            | 2,581,119                      |   |   |   | 2,473,521 |   |
| Furniture and fixtures                    |                           |                            | 2,282,460                      |   |   |   | 2,213,695 |   |
|                                      |                           |                            | 56,052,346                     |   |   |   | 50,707,141 |   |
| Accumulated depreciation and amortization |                           |                            | (34,588,157                    | )      |   |   | (29,352,906 | ) |
|                                      |                           |                            | 21,464,189                     |   |   |   | 21,354,235 |   |
|                                      |                           |                            |                           |   |   |   |   |   |
| Capital work-in-progess                   |                           |                            | 3,979,137                      |   |   |   | 1,851,158 |   |
| Land and improvements                     |                           |                            | 4,429,619                      |   |   |   | 3,120,619 |   |
|                                      |                           | $                               | 29,872,945                     |   |   | $ | 26,326,012 |   |
|                                      |                           |                            |                           |   |   |   |   |   |

----

|                                            |                           | 2010     |                           | 2009         |
|-------------------------------------------------|--------------------------------|----------|--------------------------------|--------------|
|                                            |                           | Gross    |                           |         |   | Gross |   |   |
|                                            |                           | Carrying |                           | Accumulated  |   | Carrying |   | Accumulated |
|                                            |       | Amount   |       | Amortization |       | Amount |       | Amortization |
| RP technology                                   |                           | $        | 5,548,064                      |         | $ | 4,024,802 |   | $ | 5,548,417 |   | $ | 3,709,907 |
| Capitalized software development costs          |                           |     | 13,431,570                     |         |   | 10,500,398 |   |   | 12,263,654 |   |   | 8,578,822 |
| Patents                                         |                           |     | 3,413,062                      |         |   | 2,352,205 |   |   | 3,304,396 |   |   | 2,066,802 |
| Trademarks                                      |                           |     | 298,969                        |         |   | 276,246 |   |   | 287,682 |   |   | 263,049 |
|                                            |                           |     | 22,691,665                     |         | $ | 17,153,651 |   |   | 21,404,149 |   | $ | 14,618,580 |
| Accumulated amortization                        |                           |     | 17,153,651                     |         |   |   |   |   | 14,618,580 |   |   |   |
| Net book value of amortizable intangible assets |                           |     | 5,538,014                      |         |   |   |   |   | 6,785,569 |   |   |   |
| Goodwill                                        |                           |     | 867,700                        |         |   |   |   |   | 867,700 |   |   |   |
| Net book value intangible assets                |                           | $        | 6,405,714                      |         |   |   |   | $ | 7,653,269 |   |   |   |
|                                            |                           |     |                           |         |   |   |   |   |   |   |   |   |

| Year ending December 31, |   |                            |      |
|--------------------------|--------|---------------------------------|-----------|
| 2011                     |   | $      | 2,026,000 |
| 2012                     |   |                            | 1,250,000 |
| 2013                     |   |                            | 902,000   |
| 2014                     |   |                            | 555,000   |
| 2015                     |   |                            | 354,000   |

----

|                                           | 2010                                  |      | 2009   |
|------------------------------------------------|---------------------------------------|--------------------------|--------|
| Trade                                          | $                                     | 7,406,429                |   | $ | 4,833,992 |
| Compensation, commissions and related benefits |                                  | 3,891,146                |   |   | 2,993,844 |
| Reserve for warranty expenses                  |                                  | 1,204,450                |   |   | 677,757 |
| Taxes                                          |                                  | -                        |   |   | 2,686,979 |
| Other                                          |                                  | 1,906,603                |   |   | 1,682,226 |
|                                           | $       | 14,408,628               |   | $       | 12,874,798 |
|                                           |                                  |                     |   |   |   |

|                                             | 2010                                  |      | 2009   |
|--------------------------------------------------|---------------------------------------|--------------------------|--------|
| Beginning balance                                | $                                     | 677,757                  |   |   | $ | 321,874 |   |
| Accruals for warranties issued during the period |                                  | 1,991,014                |   |   |   | 1,280,163 |   |
| Warranty costs incurred during the period        |                                  | (1,464,321               | )      |   |   | (924,280 | ) |
| Ending balance                                   | $       | 1,204,450                |   |   | $       | 677,757 |   |
|                                             |                                  |                     |   |   |   |   |   |

|                          | 2010                                  |      | 2009   |
|-------------------------------|---------------------------------------|--------------------------|--------|
| Maintenance contracts         | $                                     | 10,167,918               |   | $ | 9,223,806 |
| Implied maintenance contracts |                                  | 573,197                  |   |   | 566,377 |
| Other                         |                                  | 820,406                  |   |   | 888,244 |
|                          | $       | 11,561,521               |   | $       | 10,678,427 |
|                          |                                  |                     |   |   |   |

----

|                                                                                                         | 2010                                  |      | 2009   |
|--------------------------------------------------------------------------------------------------------------|---------------------------------------|--------------------------|--------|
| Current deferred tax assets:                                                                                 |                                  |                     |   |   |   |   |   |
|        Inventory reserves                                                      | $                                     | 776,000                  |   |   | $ | 700,000 |   |
|        Deferred maintenance revenue                                            |                                  | 525,000                  |   |   |   | 551,000 |   |
|        Allowance for doubtful accounts                                         |                                  | 393,000                  |   |   |   | 330,000 |   |
|        State research and development                                          |                                  |                     |   |   |   |   |   |
|               credit carryforward           |                                  | 203,000                  |   |   |   | 158,000 |   |
|        Reserve for warranty expenses                                           |                                  | 449,000                  |   |   |   | 252,000 |   |
|        Vacation accrual                                                        |                                  | 313,000                  |   |   |   | 239,000 |   |
|        Warrant cost accrual                                                    |                                  | 795,000                  |   |   |   | - |   |
|        Unrealized loss on foreign currency                                |                                  | -                        |   |   |   | 47,000 |   |
|               Current deferred tax assets   |                                  | 3,454,000                |   |   |   | 2,277,000 |   |
| Current deferred tax liabilities:                                                                            |                                  |                     |   |   |   |   |   |
|        Unrealized gain on foreign currency                                     |                                  | (7,000                   | )      |   |   | - |   |
| Net current deferred tax assets                                                                              | $                                     | 3,447,000                |   |   | $ | 2,277,000 |   |
|                                                                                                         |                                  |                     |   |   |   |   |   |
| Long-term deferred tax assets:                                                                               |                                  |                     |   |   |   |   |   |
|        Stock compensation expense                                              | $                                     | 487,000                  |   |   | $ | 458,000 |   |
|        Investment reserves                                                     |                                  | 639,000                  |   |   |   | 694,000 |   |
|        Amortization                                                            |                                  | 973,000                  |   |   |   | 820,000 |   |
|               Long-term deferred tax assets |                                  | 2,099,000                |   |   |   | 1,972,000 |   |
| Long-term deferred tax liabilities:                                                                          |                                  |                     |   |   |   |   |   |
|        Depreciation                                                       |                                  | (1,980,000               | )      |   |   | (1,047,000 | ) |
|        Software capitalization                                            |                                  | (326,000                 | )      |   |   | (237,000 | ) |
| Net long-term deferred tax assets (liabilities)                                                              | $       | (207,000                 | )      |   | $       | 688,000 |   |
|                                                                                                         |                                  |                     |   |   |   |   |   |

|          | 2010                                  |      | 2009   |                   | 2008      |
|---------------|---------------------------------------|--------------------------|--------|---------------------------------------|-----------|
| United States | $       | 13,506,311               |   | $       | 5,994,420 |   | $       | 20,270,134 |
| Foreign       |                                  | 329,027                  |   |                                  | 187,852   |   |   | 463,353 |
|          | $                                     | 13,835,338               |   | $                                     | 6,182,272 |   | $ | 20,733,487 |
|          |                                  |                     |   |                                  |      |   |   |   |

----

|                                                    | 2010                                  |      | 2009   |      | 2008                                  |
|---------------------------------------------------------|---------------------------------------|--------------------------|--------|--------------------------|---------------------------------------|
| Current                                                 |                                  |                     |   |                     |                                  |   |   |   |   |   |
|        Federal            | $                                     | 4,336,929                |   |                     | $                                     | 3,143,000 |   |   | $ | 5,976,000 |
|        State              |                                  | 247,570                  |   |                     |                                  | 416,000 |   |   |   | 878,000 |
|        Foreign            |                                  | 103,295                  |   |                     |                                  | 130,000 |   |   |   | 121,000 |
|                                                    |                                  | 4,687,794                |   |                     |                                  | 3,689,000 |   |   |   | 6,975,000 |
|                                                    |                                  |                     |   |                     |                                  |   |   |   |   |   |
| Deferred                                                |                                  |                     |   |                     |                                  |   |   |   |   |   |
|        Federal            |                                  | (160,000                 | )      |                     |                                  | (1,604,000 | ) |   |   | 133,000 |
|        State              |                                  | (62,000                  | )      |                     |                                  | (19,000 | ) |   |   | 10,000 |
|                                                    |                                  | (222,000                 | )      |                     |                                  | (1,623,000 | ) |   |   | 143,000 |
|        Total Income taxes | $       | 4,465,794                |   |                     | $       | 2,066,000 |   |   | $       | 7,118,000 |
|                                                    |                                  |                     |   |                     |                                  |   |   |   |   |   |

|                                                        | 2010                                      |      | 2009   |                       | 2008   |
|-------------------------------------------------------------|-------------------------------------------|--------------------------|--------|-------------------------------------------|--------|
| Federal statutory rate                                      | 35.0                                      | %                        |   | 35.0                                      | %      |   | 35.0 | % |
| State income taxes, net of                                  |                                      |                     |   |                                      |   |   |   |   |
|        federal benefit        | 2.1                                       |                     |   | 2.6                                       |   |   | 2.5 |   |
| Tax exempt interest income                                  | (0.8                                      | )                        |   | (2.6                                      | )      |   | (2.0 | ) |
| Stock compensation expense                                  | 0.2                                       |                     |   | 2.0                                       |   |   | 1.3 |   |
| Manufacturing deduction                                     | (3.5                                      | )                        |   | (2.0                                      | )      |   | (1.4 | ) |
| Federal research and                                        |                                      |                     |   |                                      |   |   |   |   |
|        development tax credit | (1.9                                      | )                        |   | (4.9                                      | )      |   | (2.1 | ) |
| Tax contingencies                                           | 1.3                                       |                     |   | 2.4                                       |   |   | 0.9 |   |
| Other                                                       | (0.1                                      | )                        |   | 0.9                                       |   |   | 0.1 |   |
| Effective income tax rate                                   |        32.3 | %                        |   |        33.4 | %      |   |        34.3 | % |

----

|                                                    | 2010                                  |      | 2009   |
|---------------------------------------------------------|---------------------------------------|--------------------------|--------|
| Balance at beginning of year                            | $       | 1,232,000                |   |   | $       | 1,223,000 |   |
| Additions for tax positions related to the current year |                                  | 118,000                  |   |   |   | 95,000 |   |
| Additions for tax positions related to previous years   |                                  | 255,000                  |   |   |   | - |   |
| Reduction of reserve for statute expirations            |                                  | (200,000                 | )      |   |   | (86,000 | ) |
| Balance at end of year                                  | $                                     | 1,405,000                |   |   | $ | 1,232,000 |   |
|                                                    |                                  |                     |   |   |   |   |   |

----

|                                                                        |                     | Year ended December 31,               |
|-----------------------------------------------------------------------------|--------------------------|---------------------------------------|
| Auction rate securities                                                     |      | 2010                                  |      | 2009 |
| Beginning balance                                                           |                     | $       | 1,055,750 |   |   | $       | 1,109,250 |   |
| Total gains or (losses):                                                    |                     |                                  |   |   |   |   |   |   |
|        Included in earnings                   |                     |                                  | - |   |   |   | (94,000 | ) |
|        Included in other comprehensive income |                     |                                  | 154,500 |   |   |   | 40,500 |   |
| Settlements                                                                 |                     |                                  | (25,000 | ) |   |   | - |   |
| Ending balance                                                              |                     | $                                     | 1,185,250 |   |   | $ | 1,055,750 |   |
|                                                                        |                     |                                  |   |   |   |   |   |   |

----

| Year ending December 31, |      |                                  |    |
|--------------------------|--------------------------|---------------------------------------|---------|
| 2011                     |                     | $       | 543,357 |
| 2012                     |                     |                                  | 210,486 |
| 2013                     |                     |                                  | 65,189  |
| 2014                     |                     |                                  | 1,297   |
| 2015                     |                     |                                  | -       |
| Thereafter               |                     |                                  | -       |
|                     |                     | $                                     | 820,329 |
|                     |                     |                                  |    |

----

|                                    | Employee-                             |                     | Contract         |                     |                                  |    |   |
|-----------------------------------------|---------------------------------------|--------------------------|------------------|--------------------------|---------------------------------------|---------|--------|
|                                    | Related Items and                     |                     | Terminations and |                     |                                  |    |   |
|                                    | Benefits                              |      | Other            |      | Total                                 |
| Accrued balance as of December 31, 2008 | $       | 306,014                  |             |                     | $       | 66,881  |   |   | $       | 372,895 |   |
| Expenses incurred                       |                                  | 779,000                  |             |                     |                                  | -       |   |   |   | 779,000 |   |
| Cash payments                           |                                  | (810,707                 | )                |                     |                                  | (66,881 | )      |   |   | (877,588 | ) |
| Adjustments                             |                                  | (274,307                 | )                |                     |                                  | -       |   |   |   | (274,307 | ) |
| Accrued balance as of December 31, 2009 | $                                     | -                        |             |                     | $                                     | -       |   |   | $ | - |   |

----

| Risk-free interest rate                |                                  | 3.1       | %      |
|----------------------------------------|---------------------------------------|-----------|--------|
| Expected option term                   |                                  | 4.5 years |   |
| Expected price volitility              |                                  | 47        | %      |
| Dividend yield                         |                                  | -         |   |
| Weighted average grant date fair value | $       | 9.98      |   |

----

|                                                      |                                           |                     |           |                                  |     |                                                          |                                  |   |    | Weighted                              |
|-----------------------------------------------------------|------------------------------------------------|--------------------------|----------------|---------------------------------------|----------|---------------------------------------------------------------|---------------------------------------|--------|---------|---------------------------------------|
|                                                      | Number                                         |                     |           |                                  |     |                                                          |                                  |   | Average |
|                                                      | of Options                                     |                     | Per Share      |                                  | Exercise |
|                                                      | Outstanding                                    |      | Exercise Price |                   | Price    |
| Shares under option                                       |                                           |                     |           |                                  |     |                                                          |                                  |   |    |                                  |   |
|        at January 1, 2008   |        1,802,028 |                     |           | $       | 1.02     |      -      | $       | 26.15  |    | $       | 15.02 |
| Granted in 2008                                           | 281,500                                        |                     |           |                                  | 9.30     | -                                                             |                                  | 22.06  |    |                                  | 11.67 |
| Exercised in 2008                                         | (234,300                                       | )                        |           |                                  | 1.67     | -                                                             |                                  | 14.43  |    |                                  | 13.78 |
| Expired in 2008                                           | (53,050                                        | )                        |           |                                  | 1.02     | -                                                             |                                  | 14.30  |    |                                  | 11.78 |
| Forfeited in 2008                                         | (60,800                                        | )                        |           |                                  | 12.49    | -                                                             |                                  | 23.04  |    |                                  | 15.05 |
| Shares under option                                       |                                           |                     |           |                                  |     |                                                          |                                  |   |    |                                  |   |
|        at December 31, 2008 | 1,735,378                                      |                     |           |                                  | 2.54     | -                                                             |                                  | 26.15  |    |                                  | 14.42 |
| Granted in 2009                                           | 283,750                                        |                     |           |                                  | 8.27     | -                                                             |                                  | 9.90   |    |                                  | 9.82 |
| Exercised in 2009                                         | (294,400                                       | )                        |           |                                  | 4.35     | -                                                             |                                  | 14.53  |    |                                  | 12.90 |
| Expired in 2009                                           | (122,800                                       | )                        |           |                                  | 3.81     | -                                                             |                                  | 14.43  |    |                                  | 14.30 |
| Forfeited in 2009                                         | (82,300                                        | )                        |           |                                  | 9.30     | -                                                             |                                  | 23.04  |    |                                  | 14.68 |
| Shares under option                                       |                                           |                     |           |                                  |     |                                                          |                                  |   |    |                                  |   |
|        at December 31, 2009 | 1,519,628                                      |                     |           |                                  | 8.27     | -                                                             |                                  | 26.15  |    |                                  | 14.08 |
| Granted in 2010                                           | 300,000                                        |                     |           |                                  | 18.26    | -                                                             |                                  | 23.85  |    |                                  | 18.30 |
| Exercised in 2010                                         | (456,200                                       | )                        |           |                                  | 9.30     | -                                                             |                                  | 26.15  |    |                                  | 13.97 |
| Forfeited in 2010                                         | (46,900                                        | )                        |           |                                  | 9.30     | -                                                             |                                  | 23.04  |    |                                  | 14.68 |
| Repurchased in 2010                                       | (138,878                                       | )                        |           |                                  | 9.30     | -                                                             |                                  | 26.15  |    |                                  | 14.04 |
| Shares under option                                       |                                           |                     |           |                                  |     |                                                          |                                  |   |    |                                  |   |
|        at December 31, 2010 | 1,177,650                                      |                     |           | $                                     | 8.27     | -                                                             | $                                     | 26.15  |    | $                                     | 15.08 |
|                                                      |                                           |                     |           |                                  |     |                                                          |                                  |   |    |                                  |   |

----

|                                                   |                                           |                     |                                  |                     |                                                          |                                  |   |   | Weighted                              |
|--------------------------------------------------------|------------------------------------------------|--------------------------|---------------------------------------|--------------------------|---------------------------------------------------------------|---------------------------------------|--------|--------|---------------------------------------|
|                                                   | Number                                         |                     |                                  |                     |                                                          |                                  |   |   | Average                               |
|                                                   | of                                             |                     | Per Share                             |                     | Exercise                                                      |
|                                                   | Shares                                         |      | Exercise Price                        |      | Price                                                         |
| Options exercisable at                                 |                                           |                     |                                  |                     |                                                          |                                  |   |   |                                  |   |
|        December 31, 2010 | 441,850                                        |                     | $       | 8.27                     |      -      | $       | 26.15  |   | $       | 14.95 |
|                                                   |                                           |                     |                                  |                     |                                                          |                                  |   |   |                                  |   |
| Options exercisable at                                 |                                           |                     |                                  |                     |                                                          |                                  |   |   |                                  |   |
|        December 31, 2009 | 735,478                                        |                     | $                                     | 8.27                     | -                                                             | $                                     | 26.15  |   | $                                     | 14.49 |
|                                                   |                                           |                     |                                  |                     |                                                          |                                  |   |   |                                  |   |
| Options exercisable at                                 |                                           |                     |                                  |                     |                                                          |                                  |   |   |                                  |   |
|        December 31, 2008 |        1,199,078 |                     | $                                     | 2.54                     | -                                                             | $                                     | 26.15  |   | $                                     | 13.57 |
|                                                   |                                           |                     |                                  |                     |                                                          |                                  |   |   |                                  |   |

|            |                     | Options Outstanding                   |                     | Options Exercisable |
|-----------------|--------------------------|---------------------------------------|--------------------------|---------------------|
|            |                     | Number                                |                     | Weighted-           |   |   |   |   | Number |   |   |   |
|            |                     | Outstanding                           |                     | Average             |   | Weighted- |   | Exercisable |   | Weighted- |
|            |                     | at                                    |                     | Remaining           |   | Average |   | at |   | Average |
| Exercise        |                     | December 31,                          |                     | Contractual         |   | Exercise |   | December 31, |   | Exercise |
| Prices          |      | 2010                                  |      | Life in Years       |      | Price |      | 2010 |      | Price |
| $8.27 - 9.90    |                     |                                  | 345,750                  |                |        4.3 |   | $       | 9.67 |   |   | 66,150 |   | $       | 9.35 |
| 12.49 - 16.17   |                     |                                  | 342,900                  |                | 1.7 |   |   | 13.25 |   |   | 272,700 |   |   | 13.22 |
| 18.26 - 19.15   |                     |                                  | 295,000                  |                | 5.1 |   |   | 18.26 |   |   | 800 |   |   | 18.97 |
| $21.96 - 26.15  |                     |                                  | 194,000                  |                | 2.9 |   |   | 23.11 |   |   | 102,200 |   |   | 23.16 |
|            |                     |                                  | 1,177,650                |                |   |   |   | 15.08 |   |   | 441,850 |   |   | 14.95 |
|            |                     |                                  |                     |                |   |   |   |   |   |   |   |   |   |   |
| Aggregate       |                     |                                  |                     |                |   |   |   |   |   |   |   |   |   |   |
| intrinsic value |                     | $       | 20,677,463               |                |   |   |   |   |   | $       | 7,814,433 |   |   |   |
|            |                     |                                  |                     |                |   |   |   |   |   |   |   |   |   |   |

----

|                                   | 2010                                  |      | 2009                  |      | 2008                                  |
|----------------------------------------|---------------------------------------|--------------------------|-----------------------|--------------------------|---------------------------------------|
| Risk-free interest rate                |                                  | 2.3                      | %                     |                     |                                  | 2.0 | % |   |   | 3.9 | % |
| Expected option term                   | 4.5 years                   |                     | 4.5 years   |                     | 4.5 years                   |
| Expected price volitility              |                                  | 39                       | %                     |                     |                                  | 40 | % |   |   | 43 | % |
| Dividend yield                         |                                  | -                        |                  |                     |                                  | - |   |   |   | - |   |
| Weighted average grant date fair value | $       | 6.13                     |                  |                     | $       | 3.59 |   |   | $       | 4.54 |   |

|      |         | 2010                                  |      | 2009   |                   | 2008       |
|--------------------------|--------------|---------------------------------------|--------------------------|--------|---------------------------------------|------------|
|                     | Europe       | $                                     | 34,362,430               |   | $                                     | 26,308,543 |   | $ | 37,430,146 |
|                     | Asia Pacific |                                  | 20,536,318               |   |                                  | 15,814,405 |   |   | 18,533,549 |
|                     | Other        |                                  | 2,049,761                |   |                                  | 1,076,828  |   |   | 1,883,206 |
|                     |         | $       | 56,948,509               |   | $       | 43,199,776 |   | $       | 57,846,901 |
|                     |         |                                  |                     |   |                                  |       |   |   |   |

----

|                                                                                   |                           | First   |                                      | Second  |                           | Third   |                                      | Fourth  |
|----------------------------------------------------------------------------------------|--------------------------------|---------|-------------------------------------------|---------|--------------------------------|---------|-------------------------------------------|---------|
|                                                                                   |       | Quarter |                  | Quarter |       | Quarter |                  | Quarter |
| 2010                                                                                   |                           |    |                                      |    |                           |    |                                      |    |   |   |   |   |   |
| Net sales                                                                              |                           | $       | 23,006,319                                |    |                           | $       | 30,059,496                                |    | $ | 30,258,549 |   | $ | 33,774,921 |
| Gross profit                                                                           |                           |    | 9,420,075                                 |    |                           |    | 14,762,004                                |    |   | 14,708,988 |   |   | 17,194,901 |
| Net income (loss)                                                                      |                           |    | (443,101                                  | )       |                           |    | 2,332,155                                 |    |   | 3,175,550 |   |   | 4,304,936 |
| Net income (loss) per common                                                           |                           |    |                                      |    |                           |    |                                      |    |   |   |   |   |   |
|        share:                                            |                           |    |                                      |    |                           |    |                                      |    |   |   |   |   |   |
|               Basic   |                           | $       | (0.02                                     | )       |                           | $       | 0.11                                      |    | $ | 0.15 |   | $ | 0.21 |
|               Diluted |                           |    | (0.02                                     | )       |                           |    | 0.11                                      |    |   | 0.15 |   |   | 0.20 |
|                                                                                   |                           |    |                                      |    |                           |    |                                      |    |   |   |   |   |   |
| 2009                                                                                   |                           |    |                                      |    |                           |    |                                      |    |   |   |   |   |   |
| Net sales                                                                              |                           | $       |       23,144,801 |    |                           | $       |       24,648,277 |    | $ |       24,329,396 |   | $ |       26,233,758 |
| Gross profit                                                                           |                           |    | 9,572,352                                 |    |                           |    | 11,573,221                                |    |   | 11,868,254 |   |   | 13,369,745 |
| Net income (loss)                                                                      |                           |    | (703,929                                  | )       |                           |    | 849,571                                   |    |   | 1,578,800 |   |   | 2,391,829 |
| Net income (loss) per common                                                           |                           |    |                                      |    |                           |    |                                      |    |   |   |   |   |   |
|        share:                                            |                           |    |                                      |    |                           |    |                                      |    |   |   |   |   |   |
|               Basic   |                           | $       | (0.03                                     | )       |                           | $       | 0.04                                      |    | $ | 0.08 |   | $ | 0.12 |
|               Diluted |                           |    | (0.03                                     | )       |                           |    | 0.04                                      |    |   | 0.08 |   |   | 0.12 |

----

| SCHEDULE II                                    |
|------------------------------------------------|
| VALUATION AND QUALIFYING ACCOUNTS AND RESERVES |

| Years ended December 31, 2010, 2009, and 2008  |                           |        |                                           |                 |                           |                                         |                           |       |                           |      |   |                                         |   |
|------------------------------------------------|--------------------------------|-------------|------------------------------------------------|----------------------|--------------------------------|----------------------------------------------|--------------------------------|------------|--------------------------------|-----------|--------|----------------------------------------------|--------|
|                                      |                           |        |                                           |                 |                           |                                         |                           |       |
| COLUMN A                                       |                           | Column B    |                                           | Column C - Additions |                           | Column D                                     |                           | Column E   |
|                                           |                           | Balances at |                                           | Charged to           |                           |                                         |                           |       |                           |      |   | Balances                                     |
|                                           |                           | beginning   |                                           | costs and            |                           | Charged to                                   |                           |       |                           |      | at end |
| Description                                    |       | of period   |                       | expenses             |       | other accounts                               |       | Deductions |       | of period |
| 2010                                           |                           |        |                                           |                 |                           |                                         |                           |       |                           |      |   |                                         |   |   |   |
| Reserve for bad debts and allowances           |                           | $           |        1,125,112 |                 | $                              |        332,363 |                           | $          | -                              |      | $      |        173,550 |   | $ |        1,283,925 |
| Reserve for sales returns and other allowances |                           |        | -                                              |                 |                           | 372,811                                      |                           |       |  -                        |      |   | 372,811                                      |   |   | - |
|                                           |                           |        |                                           |                 |                           |                                         |                           |       |                           |      |   |                                         |   |   |   |
| 2009                                           |                           |        |                                           |                 |                           |                                         |                           |       |                           |      |   |                                         |   |   |   |
| Reserve for bad debts and allowances           |                           |        | 1,225,606                                      |                 |                           | 672,241                                      |                           |       | -                              |      |   | 772,735                                      |   |   | 1,125,112 |
| Reserve for sales returns and other allowances |                           |        | 121,556                                        |                 |                           | -                                            |                           |       | -                              |      |   | 121,556                                      |   |   | - |
|                                           |                           |        |                                           |                 |                           |                                         |                           |       |                           |      |   |                                         |   |   |   |
| 2008                                           |                           |        |                                           |                 |                           |                                         |                           |       |                           |      |   |                                         |   |   |   |
| Reserve for bad debts and allowances           |                           |        | 1,169,464                                      |                 |                           | 441,321                                      |                           |       | -                              |      |   | 385,179                                      |   |   | 1,225,606 |
| Reserve for sales returns and other allowances |                           |        | 191,006                                        |                 |                           | -                                            |                           |       | -                              |      |   | 69,450                                       |   |   | 121,556 |

----

|                           | EXHIBIT                        |                           |                           |
|--------------------------------|--------------------------------|--------------------------------|--------------------------------|
|       | NO.                            |       | DESCRIPTION                    |
|                           |                           | 3.1                            |                           |   | Restated Certificate of Incorporation of the Company.(8) |
|                           |       |                           |       |   |   |
|                           |                           | 3.2                            |                           |   | Amended and Restated By-Laws of the Company.(7) |
|                           |                           |                           |                           |   |   |
|                           |                           | 4.1                            |                           |   | Warrant to purchase 500,000 Shares of Common Stock dated January 18, 2010.(10) |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.1                           |                           |   | Non-Competition Agreement between the Company and S. Scott Crump, dated October 15, 1990.(1) |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.2                           |                           |   | Employee Confidentiality Agreement between the Company and S. Scott Crump, dated October 15, 1990.(1) |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.3                           |                           |   | Stratasys, Inc. 1998 Incentive Stock Option Plan.(4)* |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.4                           |                           |   | Stratasys, Inc. 2000 Incentive Stock Option Plan.(5)* |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.5                           |                           |   | Stratasys, Inc. 2002 Long-Term Performance and Incentive Plan.(6)* |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.6                           |                           |   | Stratasys, Inc. 2008 Long-Term Performance and Incentive Plan.(9)* |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.7                           |                           |   | Form of Option Agreement for employees.(9)* |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.8                           |                           |   | Form of Option Agreement for directors.(9)* |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.9                           |                           |   | 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.(3) |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.10                          |                           |   | 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.(3) |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.11                          |                           |   | 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.(3) |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.12                          |                           |   | Asset Purchase Agreement between the Company and IBM dated January 1, 1995.(2) |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.13                          |                           |   | Master OEM Agreement between Hewlett-Packard Company and Stratasys, Inc. dated as of January 18, 2010.(11)** |
|                           |                           |                           |                           |   |   |
|                           |                           | 10.14                          |                           |   | Protective Rights Agreement between Stratasys, Inc. and Hewlett-Packard Company dated as of January 18, 2010.(11) |
|                           |                           |                           |                           |   |   |
|                           |                           | 14.1                           |                           |   | Code of Business Conduct and Ethics.(9) |
|                           |                           |                           |                           |   |   |
|                           |                           | 21.1                           |                           |   | Subsidiaries of the Company.(8) |

----

|                           | EXHIBIT                        |                           |                           |
|--------------------------------|--------------------------------|--------------------------------|--------------------------------|
|       | NO.                            |       | DESCRIPTION                    |
|                           |       | 23.1                           |       |   | Consent of Grant Thornton LLP.(12) |
|                           |                           |                           |                           |   |   |
|                           |                           | 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.(12) |
|                           |                           |                           |                           |   |   |
|                           |                           | 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.(12) |
|                           |                           |                           |                           |   |   |
|                           |                           | 32.1                           |                           |   | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(12) |
|                           |                           |                           |                           |   |   |
|                           |                           | 32.2                           |                           |   | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(12) |

|                                       | (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, Amendment No. 2, dated January 1, 1995.                                                                   |
|                                       |   |
|                                       | (3)    |                                       | Incorporated by reference from Amendment No. 1 to the Registration Statement on Form SB-2 (File No. 33-99108) filed December 20, 1995.                                 |
|                                       |   |
|                                       | (4)    |                                       | Incorporated by reference from the Company’s definitive Proxy Statement on Schedule 14A with respect to the Company’s 1998 Annual Meeting of Stockholders. |
|                                       |   |
|                                       | (5)    |                                       | Incorporated by reference from the Company’s Registration Statement on Form S-8 (File No. 333- 32782) filed March 17, 2000.                                      |
|                                       |   |
|                                       | (6)    |                                       | Incorporated by reference from the Company’s definitive Proxy Statement on Schedule 14A with respect to the Company’s 2002 Annual Meeting of Stockholders. |
|                                       |   |
|                                       | (7)    |                                       | Incorporated by reference from the Company’s Form 8-K filed July 31, 2007.                                                                                       |
|                                       |   |
|                                       | (8)    |                                       | Incorporated by reference from the Company’s Form 10-K for the year ended December 31, 2007.                                                                     |
|                                       |   |
|                                       | (9)    |                                       | Incorporated by reference from the Company’s Form 10-K for the year ended December 31, 2008.                                                                     |
|                                       |   |
|         | (10)   |         | Incorporated by reference from the Company’s Form 8-K filed January 19, 2010.                                                                                    |
|                                       |   |
|                                       | (11)   |                                       | Incorporated by reference from the Company’s Form 10-Q for the quarter ended March 31, 2010.                                                                     |
|                                       |   |
|                                       | (12)   |                                       | Filed herewith.                                                                                                                                                        |
|                                       |   |

| *      |                                 | Compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                          |
|--------|--------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                 |                                                                                                                                                                                                                                                                                                                                       |
| **     |        | Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Securities and Exchange Commission pursuant to the Company’s application regarding confidential treatment under Rule 406 of the Securities Act of 1933, as amended, or Rule 24b-2 of the Securities Exchange Act of 1934, as amended. |

----

----

| STRATASYS, INC.                      |
|--------------------------------------|
|                                 |
|                                 |
| By: /s/ S. SCOTT CRUMP               |
|                                 | S. Scott Crump |
|                                 | President |
| Dated:      | March 8, 2011 |

| /s/ S. SCOTT CRUMP        |        | Chairman of the Board of Directors,     |        |          |
|---------------------------|--------------------------------------|-----------------------------------------|--------------------------------------|---------------|
| S. Scott Crump            |                                 | President, Chief Executive Officer,     |                                 | March 8, 2011 |
|                      |                                 | Treasurer (Principal Executive Officer) |                                 |          |
|                      |                                 |                                    |                                 |          |
| /s/ ROBERT F. GALLAGHER   |                                 | Chief Financial Officer (Principal      |                                 | March 8, 2011 |
| Robert F. Gallagher       |                                 | Financial and Accounting Officer)       |                                 |          |
|                      |                                 |                                    |                                 |          |
| /s/ RALPH E. CRUMP        |                                 | Director                                |                                 | March 8, 2011 |
| Ralph E. Crump            |                                 |                                    |                                 |          |
|                      |                                 |                                    |                                 |          |
| /s/ EDWARD J. FIERKO      |                                 | Director                                |                                 | March 8, 2011 |
| Edward J. Fierko          |                                 |                                    |                                 |          |
|                      |                                 |                                    |                                 |          |
| /s/ JOHN J. MCELENEY      |                                 | Director                                |                                 | March 8, 2010 |
| John J. McEleney          |                                 |                                    |                                 |          |
|                      |                                 |                                    |                                 |          |
| /s/ CLIFFORD H. SCHWIETER |                                 | Director                                |                                 | March 8, 2010 |
| Clifford H. Schwieter     |                                 |                                    |                                 |          |
|                      |                                 |                                    |                                 |          |
| /s/ GREGORY L. WILSON     |                                 | Director                                |                                 | March 8, 2010 |
| Gregory L. Wilson         |                                 |                                    |                                 |          |

----