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

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 ---------------

                                    FORM 10-K

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                       OR

[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934

                        FOR THE TRANSITION PERIOD FROM TO

                         COMMISSION FILE NUMBER 1-13400

                                 STRATASYS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                      DELAWARE                                36-3658792
           (STATE OR OTHER JURISDICTION OF                (I.R.S. EMPLOYER
          INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)

    14950 MARTIN DRIVE, EDEN PRAIRIE, MINNESOTA                55344
      (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)               (ZIP CODE)

                                 (952) 937-3000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

              SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT:

                                                  NAME OF EACH EXCHANGE ON WHICH
                 TITLE OF EACH CLASS                 EACH CLASS IS REGISTERED
                 -------------------              ------------------------------
            COMMON STOCK, $.01 PAR VALUE           THE PACIFIC EXCHANGE INC.

           SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT: NONE

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

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

    The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of March 15, 2002 was approximately
$35,061,881. On such date, the closing price of the Registrant's Common
Stock, as quoted on the Nasdaq National Market, was $8.60.

                       DOCUMENTS INCORPORATED BY REFERENCE

    Part III of the Annual Report on Form 10-K is herein incorporated by
reference from the Registrant's Definitive Proxy Statement to be filed with the
Securities and Exchange Commission with respect to the Registrant's Meeting of
Stockholders scheduled to be held on May 9, 2002.
================================================================================

<PAGE>

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL DEVELOPMENT OF BUSINESS

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

    -  In 1996 and 1997, we introduced several enhanced versions of our FDM
       system. In 1997, we also introduced our Genisys system, which we
       developed from technology that we acquired from IBM in 1995.

    -  In January 1998, we introduced the FDM Quantum/(R)/, which offers large
       modeling capabilities (the largest commercial build envelope in the
       industry) combined with significant speed and performance enhancements as
       compared with the FDM 2000. The FDM Quantum incorporates MagnaDrive
       technology that allows the extrusion heads to move on a bed of air while
       controlled by electro-magnetic homing devices.

    -  In December 1998, we acquired RP technology that we subsequently used to
       develop our Prodigy(TM) and Dimension(TM) systems.

    -  In April 1999, we introduced the GenisysXs. This system offered enhanced
       performance and speed improvements over the original Genisys.

    -  In August 1999, we introduced the FDM 3000 system based on our core FDM
       technology. The FDM 3000 features a build envelope 60% larger than our
       Benchtop systems. In conjunction with the FDM 3000, we introduced
       WaterWorks(TM). The patented WaterWorks process allows for the easy
       removal of supports from a completed prototype model by simple immersion
       into a water-based solution.

    -  In July 2000, we introduced Prodigy. Prodigy is a low-cost rapid
       prototyping system that produces ABS parts for functional testing of
       prototype designs. Prodigy offers office modeling, speed, ease of use,
       and networking capabilities at a competitive price.

    -  In November 2000, we introduced the Maxum(TM). Maxum offers significant
       speed enhancements over our previously released Quantum system. Maxum
       features WaterWorks and Insight(TM), our preprocessing software that
       increases build speed and improves the design engineer's control and
       efficiency over the entire build process. Insight was separately
       introduced in February 2001 as a replacement for our QuickSlice software.

    -  In May 2001, we introduced the FDM Titan(TM). Titan is based on our core
       FDM technology and offers users the capability to model in polycarbonate,
       a durable engineering thermoplastic material that offers strength and
       superior heat and chemical resistance. The capability of modeling in ABS
       was added to Titan in December 2001.

    -  In February 2002, we introduced the Dimension. Dimension offers ABS
       modeling capabilities on a 3-D Printer platform. We believe that
       Dimension, introduced at $29,900, is the lowest priced system in the
       rapid prototyping market.

    -  In March 2002, we introduced the Prodigy Plus(TM). This system
       incorporates our WaterWorks soluble support system on the Prodigy
       platform, and is further enhanced by the addition of our Insight
       software. Commercial shipments are expected to commence in May 2002.

<PAGE>

DESCRIPTION OF BUSINESS

    We are a leader in the three dimensional ("3-D") imaging business, which is
referred to as "rapid prototyping". We develop, manufacture and market a family
of rapid prototyping devices that enable engineers and designers to create
physical models, tooling and prototypes out of plastic and other materials
directly from a computer aided design ("CAD") workstation. In many industries,
the models and prototypes required in product development are produced
laboriously by hand-sculpting or machining, a traditional process that can take
days or weeks. Our computerized modeling systems use our proprietary technology
to make models and prototypes more directly from a designer's three-dimensional
CAD in a matter of hours.

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

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

    -  ease of use

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

    -  the availability of a variety of modeling materials

    -  the lack of any need for costly replacement lasers and laser parts

Our systems can also run virtually unattended, producing models while designers
perform other tasks.

    The process involved in the development of a three-dimensional model using
our FDM systems begins with the creation of a conceptual geometric model on a
CAD workstation. The model is then imported into our proprietary software
programs, which mathematically slice the conceptual model into horizontal layers
that are downloaded into the system. These rapid prototyping machines basically
draw cross-sections of the model one layer at a time to create a
three-dimensional "blueprint." A spool of thin thermoplastic modeling material
feeds into a moving FDM extruding head, which heats the material to a
semi-liquid state. This semi-liquid material is then extruded and deposited in
ultra-thin flat layers on a base (the "X-Y Stage") in the modeling chamber. As
the material is directed into place by the computer-controlled head, layer upon
layer, the material solidifies, creating a precise and strong laminated model.

    The Genisys modeling process is similar. Genisys uses our proprietary
AutoGen/(R)/ software to slice the conceptual model created on a CAD workstation
into horizontal layers that are downloaded into Genisys. Genisys then uses
wafers of polyester modeling material, rather than spools of filament, to feed
the extrusion head. The extrusion head heats these wafers and, using a precision
hydraulic pump, deposits a continuous layer of plastic polymer roads onto the
X-Y Stage to create a three-dimensional model by building up layers. In
comparison to the FDM systems, due to its size, Genisys allows the prototype to
be created on a desktop, directly from a workstation, like a 3-D printer. The
Company's GenisysXs uses a modeling process similar to the original Genisys
system.

PRODUCTS

    Modeling Equipment. We have been developing and improving our line of rapid
prototyping products since our inception in 1989. Since we began selling the 3-D
Modeler, our first product, commercially in 1992, we have enhanced and expanded
our product line. We have improved both the speed and accuracy of our FDM
systems, we have expanded their build envelope, we have introduced a number of
new modeling materials, and we have developed and introduced a low-cost 3-D
printer based on technology that we acquired from IBM. We have also enhanced and
upgraded the software that our systems use to read CAD files and build
prototypes. Although we have discontinued the manufacture of the 3-D Modeler and
the other systems that we introduced between 1992 and 1998, we continue to
support and maintain systems that are still in the field and to make and sell
the modeling materials

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that they use. Our current product line ranges from our Dimension, a low-cost
3-D printer to our Maxum, which can be used to build large functional prototypes
and replacement parts.

    GenisysXs offers enhanced performance and speed improvements over the
original Genisys. It is useful for the production of conceptual models employed
in the early stages of the design cycle, as it enables a designer to produce
concept iterations at his desk directly from a workstation in a simple
push-button fashion. We introduced GenisysXs in April 1999 and began shipping it
in May 1999. With the introduction of Dimension, we expect to phase out the
GenisysXs in 2002.

    Prodigy is our low-cost rapid prototyping system that produces ABS parts for
functional testing of prototype designs. Prodigy operates in the office,
offering speed, ease of use, and networking capabilities at a competitive price.
It is based on technology we purchased in December 1998 and further developed
throughout 1999 and the first half of 2000. We introduced it and began
commercial shipments in July 2000.

    The FDM 2000 is an enhanced version of our FDM Benchtop system, but features
a 30% to 40% throughput improvement over its predecessor, the FDM 1650. Upgraded
hardware and software accounts for the improved performance features. We
introduced and began shipment of the FDM 2000 in March 1997.

    The FDM 3000 system is based on our core patented FDM technology. It
features a build envelope 60% larger than our other Benchtop systems. In
conjunction with the FDM 3000, we introduced WaterWorks. The patented WaterWorks
process allows for the easy removal of supports from a completed prototype model
by simple immersion into a water-based solution. The support material is
dissolved, resulting in a cleaned prototype that eliminates most post-processing
requirements. We offered WaterWorks to users of our FDM 2000 systems in the
fourth quarter of 1999. We introduced the FDM 3000 in August 1999 and began
shipments in the fourth quarter of that year.

    The FDM Maxum offers significant speed enhancements over our previously
released Quantum system. It incorporates MagnaDrive technology, which allows the
extrusion head to float on a bed of air while being controlled through
electromagnetic devices. This offers significant speed and performance
enhancements as compared with our benchtop systems. Maxum also features
WaterWorks and Insight, our preprocessing software that increases build speed
and improves the design engineers' control and efficiency over the entire build
process. Insight was separately introduced in February 2001 as a replacement for
our QuickSlice software, which has been standard on all FDM systems since 1993.
We introduced Maxum in November 2000, and commercial shipments commenced in
December 2000.

         The FDM Titan offers a unique set of features that addresses demanding
customer requirements. Titan offers users the capability to model in
polycarbonate, a durable engineering thermoplastic material that offers strength
and superior heat and chemical resistance. This will allow our customers to
improve their functional testing capabilities. Titan also utilizes new
technology based on "look ahead" motion profiles as well as automatic material
loading and supply changeover. The capability to model in ABS was added to Titan
in December 2001. We expect to offer additional materials on the Titan platform
that will offer improved thermal and chemical performance properties over those
materials currently available.

         The Dimension is a 3-D printer that allows users to create parts in
ABS, which offers the part strength required of true form, fit and function
testing. Dimension features our Catalyst(TM) software, which allows for
push-button ease of use by automating most required build procedures. We
introduced Dimension in February 2002, although commercial shipments to selected
resellers commenced in December 2001. We believe that Dimension, at a list price
of $29,900, is the lowest priced system in the rapid prototyping market.

         The Prodigy Plus incorporates our WaterWorks soluble support system on
the Prodigy platform, and is further enhanced by the addition of our Insight
software. Prodigy Plus, announced in March 2002, is expected to commercially
ship in May 2002.

    Our family of rapid prototyping systems offers product designers and
developers the ability to create prototypes throughout all stages of the
development cycle as well as a wide range of prices from which to choose. The
domestic

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list prices of our systems range from $29,900 for a Dimension and reach $250,000
for the FDM Maxum. We also offer special pricing for trade-in systems and
upgrades.

    We have also adapted our FDM Benchtop technology for medical use. Our
MedModeler(TM) creates anatomical parts from computed tomography ("CT") and
magnetic resonance imaging ("MRI") devices. The U.S. Food and Drug
Administration granted us a 510(k) pre-market clearance in 1997 to sell the
MedModeler as a medical device.

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

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

    -  an elastomer material for applications requiring strength, durability and
       flexibility, as used in seals or tubing

    -  polycarbonate, an engineering thermoplastic material, which is used
       commercially for demanding applications in a number of industries;
       polycarbonate offers superior impact strength coupled with resistance to
       heat and corrosive agents

    -  the hard polymer material ABS (named for its three initial monomers,
       acrylonitrile, butadiene and styrene and which is also known as an
       engineering thermoplastic material), which is used commercially to make
       products such as cell phones, computer cases and toys

    -  a highergrade ABS (ABSi), which features greater impact strength than ABS
       and can also be used in medical applications

    -  a release material, which is used for support and removed from the final
       model

    -  a water-soluble material, which is used for support during the build
       process and which is later dissolved from the finished prototype

    -   an investment casting wax

    Each material has specific characteristics that make it appropriate for
various applications. The ability to use different materials allows the user to
match the material to the end use application of the prototype, whether it is a
pattern for tooling, a concept model, or a functional prototype.

    Genisys Xs uses only one type of modeling material, a polyester, which is
manufactured in the form of wafers. A total of 50 wafers are held in a cassette,
which allows the wafers to be fed into the machine and rapidly extruded in
layers. Additional cassettes are easily loaded into the system. Each cassette
contains a memory chip that instructs the system as to the parameters and melt
temperature of the material lot, which optimizes the automatic build process of
the Genisys system. Polyester provides a unique blend of properties of cost,
durability, and easy handling for concept models.

    The modeling filament and wafers are consumable products that provide us
additional revenue.

                                      4

<PAGE>

OPERATING SOFTWARE

    Prior to 2001, we offered two proprietary software products: QuickSlice and
AutoGen. QuickSlice processes three-dimensional computer models to generate
operating data for our FDM 1650, 2000, 3000, 8000, and Quantum products. AutoGen
performs the same function for Genisys and GenesysXs 3-D Printers. We have
retained copyrights and all other ownership rights for AutoGen and QuickSlice.

    QuickSlice is an interactive software product giving users choices ranging
from semi-automatic operations to a feature-rich array of options and controls.

    In 1994, we developed SupportWorks/(R)/, which is used in conjunction with
QuickSlice to automatically generate support structures, thereby eliminating a
time-consuming manual step in the modeling process. In 1995, we integrated
SupportWorks into QuickSlice.

         In July 2000, we introduced Catalyst on our Prodigy System. It offers
automatic processing along with a greatly simplified user interface.

    In January 2001, we introduced Insight as a replacement for our QuickSlice
software, which had been standard on all FDM systems since 1993. Insight is our
preprocessing software that increases build speed and the design engineer's
control and efficiency over the entire build process. Insight is offered to
users as an upgrade under our maintenance program.

    AutoGen gives users semi-automatic operation for our Genisys and GenisysXs
3-D Printers. AutoGen is able to choose most options and settings for the user,
saving significant operator labor time. AutoGen is included in the Genisys sales
price.

APPLICATIONS FOR RAPID PROTOTYPING

         Rapid prototyping (RP) is the physical modeling of a design using a
special class of machine technology. Using an additive approach, RP systems take
data created from 3-D computer aided design (CAD data), CT and MRI scan data or
3-D digitized data to quickly produce models. Traditionally, RP has been used by
organizations to accelerate product development. Many companies use RP to test
form, fit and function to help improve the time to market. An emerging market
segment for Rapid Prototyping systems is Rapid Tooling (RT). Although not
clearly defined today, RT is driven by RP systems and allows for the production
of molds directly from CAD data or indirectly by producing custom mold inserts.

         During the past two years the largest growth segment of the RP market
has been 3-D printing products. 3-D printers are low cost RP systems (typically
under $70,000) that reside in the design/engineering environment allowing the
product development organizations quick access to an RP system. Systems in this
market segment have shown a 100% growth rate during the past 24 months,
according to Wholers Associates, Inc.

         We have shipped over 1900 systems. A wide variety of design and
manufacturing organizations use our systems. Current applications include:

         -  Automotive
         -  Consumer Products
         -  Business Machines
         -  Educational Institutions
         -  Electronics
         -  Medical Systems
         -  Medical Analysis
         -  Mold Making
         -  Tooling

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    Additional future applications include:

    -  architectural design

    -  rapid manufacturing of small-volume custom parts

    -  free-form graphic design

    -  secondary tooling and mold-making

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

MARKETING, DISTRIBUTION AND CUSTOMERS

         The focus of our marketing begins with the identification of customer
needs. We feature a broad array of products that allow us to meet the precise
needs of engineers, designers, educators, marketers and manufacturers. Our broad
range of products begins with what we believe is the industry's lowest priced
system, the Dimension at $29,900, and moves to the high performance FDM Maxum
priced at $250,000. We currently have five other products between these price
points, meeting a variety of material, size and performance criteria.

         We have sold systems to the following representative customers:

<TABLE>
<S>                                         <C>
General Motors Corporation                  Harley Davidson
Intel                                       Georgia Tech
Boeing                                      Xerox
University of Wisconsin - Madison           InFocus
Callaway Golf                               Lockheed Martin
Lego                                        Lever
Honda                                       Ford Motor Company
St. Jude Medical                            NASA
</TABLE>

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

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

<TABLE>
<S>                                           <C>
-  Web-based marketing                        -  advertisements
-  trade magazine articles                    -  direct mailings
-  brochures                                  -  trade show demonstrations
-  telemarketing programs                     -  Web sites
-  videos                                     -  www.Stratasys.com
-  press releases                             -  www.Dimensionprinting.com
</TABLE>

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

    Domestically, we sell directly to our customers. In 1997, we organized our
domestic FDM sales force into three regions. Salespersons and management reside
in the regions they service. In addition, Dimension resellers have been assigned
to managers within this regional framework. We market internationally through a
network of distributors and sales representatives. During the years ended
December 31, 2001, 2000, and 1999, export sales amounted to approximately
$19,283,900, $18,606,700 and $19,753,300 respectively.

    No customer accounted for more than 10% of sales in 2001, 2000, or 1999.

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WARRANTY AND SERVICE

    We provide a 90-day warranty on our systems sold domestically and a one-year
warranty on those sold internationally. In addition, we offer annual service and
maintenance contracts for our systems. The service contracts include updates of
our software systems. Annual service contracts for our systems are priced from
$2,500 to $50,000.

MANUFACTURING

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

    We purchase the major component parts for our FDM and office modeling
equipment from various outside vendors, subcontractors and other sources and
assemble them at our Minnesota facility. Our production floor has been organized
using demand-flow techniques in order to maximize efficiency and quality.
Computer-based Material Requirements Planning ("MRP") is used in the ordering of
parts to be delivered on-time to meet forecasted needs. At the completion of
assembly, we perform complete power up and final quality tests to ensure the
quality of our products before shipment to customers.

    We maintain an inventory of most of our necessary supplies, which
facilitates the assembly of products required for production. Our sole current
supplier of the X-Y tables for the FDM 2000, FDM 3000 and FDM 8000 systems is
Asymtek; and our sole current supplier of the FDM head motors is MircoMo
Electronics, Inc. We also have sole suppliers for two key components of our FDM
Maxum system. We consider all of these suppliers to be reliable. Nevertheless,
we maintain an inventory of such components to support continued supply.
Furthermore, we believe that the supplier of the X-Y Stage could be replaced by
in-house design and production of the part within a three-month period, if
necessary; and we could employ FDM head motors from other suppliers by
modifications to the design of the FDM systems. In-house development to replace
the vendors of the Maxum components would take four to eighteen months to
accomplish. In regard to other parts and materials, we use multiple sources of
supply and do not believe that we are dependent on any single supplier. Although
we believe that we maintain adequate inventories of vendor-specific materials,
the loss of a supplier of such vendor-specific materials or compounds could
result in a delay in the manufacture and delivery of those materials and
compounds resulting from the need to retest and recertify products supplied by
one or more new vendors. We consider our relationships with our suppliers to be
good.

RESEARCH AND DEVELOPMENT

    We believe that ongoing research and development efforts are essential to
our continued success. Accordingly, our engineering development efforts will
continue to focus on improvements to the FDM technology and development of new
modeling processes, materials, software and products. We have devoted
significant time and resources to the development of a universally compatible
and user-friendly software system. To date, much of our activity has been
focused on research and development. For the years ended December 31, 2001, 2000
and 1999, our research and development expenses were approximately $4,915,000,
$6,367,000, and $6,583,000, respectively.

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

INTELLECTUAL PROPERTY

    We consider our proprietary technology to be material to the development,
manufacture, and sale of our products and seek to protect our technology through
a combination of patents and confidentiality agreements with our employees and
others. Scott Crump, our President and CEO, was granted two U.S. patents that
cover many claims relating to various aspects of our products, FDM technology
and the associated modeling process. The term of one patent lasts until June 9,
2009, and the term of the other lasts until August 23, 2011. The patents have
been assigned to us. In addition, other employees have assigned us patents and
patent applications for other rapid prototyping

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processes and apparatuses associated with the FDM process. As part of our
purchase of rapid prototyping technology assets from IBM, we were also assigned
the rights and title to three patents developed by IBM, which cover the Genisys
system and which we believe will further augment several of our other product
lines. We recorded these patents domestically and are in the process of
recording them in certain foreign countries. The terms of these patents extend
until June 7, 2005, April 12, 2011, and May 17, 2011. In total, we currently own
22 primary U.S. patents. Corresponding patent applications covering the same
claims that are contained in our issued patents have been initiated in various
foreign countries. Other foreign patent applications have also been filed,
including the patent applications assigned to us by IBM.

    Our registered trademarks include:

                              REGISTERED TRADEMARKS

<TABLE>
<S>                                              <C>
-  Stratasys, Inc.                               -  AutoGen
-  3D Modeler                                    -  FDMM
-  QuickSlice                                    -  FDC
-  3D Plotter                                    -  BMD
-  3D Visualizer                                 -  FDM Quantum
-  FDM                                           -  Genisys
</TABLE>

    Other trademarks include:

<TABLE>
<S>                                              <C>
-  FDM Maxum                                     -  3D Printer
-  BASS                                          -  Prodigy
-  Catalyst                                      -  WaterWorks
-  Insight                                       -  SupportWorks
-  Prodigy Plus                                  -  Dimension
</TABLE>

    Each of the registered trademarks has a duration of 10 years and may be
renewed every 10 years while it is in use. Trademark applications have also been
filed in Japan and the European Community.

    We have also registered the following Internet domain names:

<TABLE>
<S>                                           <C>
-  prototype.com                              -  webmodeling.com
-  webprototypes.com                          -  3D-fax.com
-  3DPrinter.com                              -  Stratasys.com
-  Dimension printing.com
</TABLE>

WORKING CAPITAL PRACTICES

    We do not engage in unusual practices regarding inventories, receivables or
other items of working capital.

BACKLOG

    Our total backlog of system orders at December 31, 2001 was less than
$500,000, as compared with approximately $7.0 million at December 31, 2000. We
estimate that most of our backlog will ship in 2002.

COMPETITION

    We compete in a marketplace that is still dominated by conventional methods
of model-making and prototype development. Machinists and engineers working from
blueprints or CAD files and using machining or by-hand methods generally perform
the prototype development and fabrication. We believe that there is currently no
other commercial producer of 3-D modeling devices that uses a single-step,
non-toxic technology similar to our FDM and Genisys technologies. Most other
rapid prototyping or 3-D printing systems involve an additional post-processing
step, such as curing the part after construction of the model or prototype. Our
FDM and Genisys technologies do not

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<PAGE>

rely on the laser or light technology used by many other commercial
manufacturers in the rapid prototyping industry.

    Our competitors employ a number of different technologies in their rapid
prototyping devices. 3D Systems, D-MEC, Mitsui and Teijin Seiki Co. use
stereolithography in their products. 3D Systems introduced the first rapid
prototyping product. We believe that 3D Systems has accounted for approximately
29% of rapid prototyping units sold to date. DTM Corporation, purchased by 3D
Systems in 2001, and EOS produce machines that use lasers to sinter or harden
powdered material. Z Corp. uses inkjet technology to sinter powdered materials.
Sanders Prototype, Inc. and 3D Systems have developed prototyping systems that
use inkjet technology to deposit wax material layer by layer, which can be used
in an office environment. A smoothing or milling process is required between
each deposited layer to maintain accuracy in these processes. We believe that
our FDM and Genisys technologies have important advantages over our competitors'
products. These advantages include:

    -  the ability to be used in an office environment

    -  the availability of multiple strong modeling materials

    -  a one-step modeling process

    -  ease of use

    -  automated support removal

    Certain of our competitors have greater financial and marketing resources
than we have. We believe that in 2001 we were the second largest in the industry
in terms of both unit shipments and revenues.

EMPLOYEES

    As of March 11, 2002, we had 186 full-time employees and four subcontractors
or temporary employees. While we have separate internal departments, such as
manufacturing, marketing, engineering and sales, many employees perform
overlapping functions within the organization. No employee is represented by a
union, and we have not experienced a work stoppage. We believe our employee
relations are good.

GOVERNMENTAL REGULATION

GENERAL

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

    -  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

FDA REGULATION

    The FDA has the authority to regulate the preclinical and clinical testing,
manufacture, labeling, distribution, and promotion of our MedModeler FDM system
as a Class II medical device under the Federal Food, Drug, and Cosmetic Act of
1976. In November 1997, we announced that the FDA had granted the MedModeler FDM
system 510(k) clearance. We have subsequently made modifications to the
MedModeler, which we believe do not require the submission of a new 510(k)
notification. There can be no assurance, however, that the FDA would agree with
our determination not to submit, or would not require us to submit, a new 510(k)
notification for any of these changes.

                                      9

<PAGE>

    The MedModeler is subject to pervasive and continuing regulation by the FDA.
Our medical sector manufacturing facility will be subject to inspection by the
FDA to assure compliance with its Quality System Regulation ("QSR"), which
imposes testing, control, documentation and other quality assurance procedures.
In addition, we will be subject to other regulatory requirements that usually
apply to medical devices marketed in the United States, including:

    -  labeling regulations

    -  Medical Device Reporting ("MDR") regulations which require that a
       manufacturer report to the FDA certain types of adverse events involving
       its products

    -  the FDA's prohibitions against promoting products for unapproved or
       "off-label" uses

    In addition, Class II devices can be subject to additional special controls
that do not apply to Class I devices, such as performance standards, postmarket
surveillance, patient registries, and FDA guidelines.

    The MedModeler FDM system may be subject in certain instances to regulation
by foreign regulatory authorities to the extent that we seek to market it
outside the United States.

FINANCIAL INFORMATION ABOUT OPERATIONS IN THE UNITED STATES AND OTHER COUNTRIES

    The information required by this item is incorporated by reference to our
Financial Statements included elsewhere in this report. (See Part IV, Item 14,
Note 13.)

ITEM 2.  PROPERTIES.

         Our executive offices and production facilities presently comprise
approximately 89,856 square feet in two adjacent buildings in Eden Prairie,
Minnesota, near Minneapolis. We occupy a 27,756 square foot facility under a
lease that was to expire July 31, 2002. In 2001 we extended this lease until
July 31, 2004. Currently monthly base rent on this facility is $15,100, which
will increase in August 2002 to $15,680 per month. This facility used for R&D,
administrative, marketing, and sales activities.

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

         We opened two regional sales offices in 1997. We occupy 2,889 square
feet of space in Southfield, Michigan, a suburb of Detroit. We renewed this
lease in June 2001 for a three-year term that expires on June 14, 2004. Base
monthly rent under this lease is $5,056, which increased to $5,176 per month for
a one-year period commencing in June 2002. We occupy 2,504 square feet of space
in Ontario, California. We renewed this lease on September 1, 2000 for a two
year period expiring on August 31, 2002. Monthly base rent on this facility was
$3,180 through August 2001, and increased to $3,310 per month for the remainder
of the lease. We are also responsible for real estate taxes, insurance,
utilities, trash removal, and maintenance expenses at these facilities.

         In November 1997, our German subsidiary entered into a lease to occupy
4,360 square feet of space in Frankfurt, Germany. The lease expires in November
2002, with base monthly rent of approximately $6,400.

ITEM 3.  LEGAL PROCEEDINGS.

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

                                      10

<PAGE>

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

    No matter was submitted to a vote of stockholders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year ended
December 31, 2001.

                                     PART II

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

MARKET INFORMATION

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

    The following table sets forth the high and low closing bid prices of the
Company's common stock for each quarter from January 1, 2000 through the fiscal
year ended December 31, 2001.

<TABLE>
<CAPTION>
                                                HIGH     LOW
                                                ----     ---
                                                BID PRICES $
                                                ------------

<S>                                            <C>      <C>
Fiscal Year Ended December 31, 2001
January 1, 2001 - March 31, 2001               3.531    2.25
April 1, 2001 - June 30, 2001                  3.71     2.50
July 1, 2001 - September 30, 2001              4.71     2.82
October 1, 2001 - December 31, 2001            7.84     2.96

Fiscal Year Ended December 31, 2000
January 1, 2000-- March 31, 2000...........    12.75    7.375
April 1, 2000-- June 30, 2000..............    9.500    5.688
July 1, 2000-- September 30, 2000..........    7.625    5.375
October 1, 2000-- December 31, 2000........    6.000    2.063
</TABLE>

    There were approximately 169 stockholders of record of our common stock as
of March 15, 2002.

DIVIDENDS

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

                                       11

<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA.

    The selected consolidated financial data as of and for the five-year period
ended December 31, 2001, should be read in conjunction with the Consolidated
Financial Statements and related Notes for the year ended December 31, 2001,
and the Management's Discussion and Analysis of Financial Condition and Results
of Operations.

<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,
                                             ------------------------
                                         (IN THOUSANDS, EXCEPT PER SHARE
                                                    AMOUNTS)
                                        2001      2000    1999    1998    1997
                                        -----    ------  ------  ------  ------
<S>                                     <C>      <C>     <C>     <C>     <C>
Statement of Operations Data:
Sales..............................     37,572   35,611  37,587  32,437  29,636
Gross Profit.......................     23,001   21,948  24,675  21,347  19,940
Selling, general and administrative     14,598   15,233  15,611  15,320  14,676
expenses............
Research and development...........      4,915    6,367   6,583   5,944   5,055
Purchased  in-process research  and
development........................         --       --   --     6,513       --

Operating income (loss)............      3,488      349   2,481  (6,429)    209
Net income (loss)..................      2,513      988   2,144  (3,318)    515
Net income (loss) per basic share..        0.46   0.18    0.37   (0.55)   0.09
Weighted   average   basic   shares      5,462    5,527   5,776   6,072   5,726
outstanding........................
Net income (loss) per diluted share       0.46    0.17    0.37   (0.55)   0.09
Weighted  average  diluted   shares      5,493    5,684   5,779   6,072   6,016
outstanding.......................

                                        2001      2000    1999    1998    1997
                                        -----    ------  ------  ------  ------
                                                  (IN THOUSANDS)
Balance Sheet Data
Working Capital....................     21,594   20,014  19,567  18,655  26,357
Total Assets.......................     41,951   37,582  37,113  41,190  38,984
Long term debt (less current
portion)...........................      2,216      130     318     193     136
Stockholders' equity...............     31,303   29,226  28,783  28,103  33,087
</TABLE>

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

GENERAL

     We develop, manufacture, and market a family of rapid prototyping devices
that enable engineers and designers to create physical models, tooling and
prototypes out of plastic and other materials directly from a computer aided
design ("CAD") workstation. Historically, our growth has come from sales to a
number of industries, including automotive, consumer products, electronics,
medical, and aerospace. Universities, other educational institutions, and
service bureaus have also been significant markets for us. Our current and
future growth is largely dependent upon our ability to penetrate new markets,
and develop and market new rapid prototyping devices and applications that meet
the needs of its current and prospective customers. New product developments
will focus on various rapid prototyping devices, modeling materials, and
software enhancements. We anticipate that in 2002 our primary business strategy
will focus on expanding international and domestic sales of our existing family
of rapid prototyping devices, while maintaining on-going development of new
rapid prototyping equipment, modeling materials, and software.

     In May 2001 we introduced the FDM Titan and began commercial shipments in
June 2001. Titan is a rapid prototyping system that produces parts in
polycarbonate. In January 2002, we announced that Titan would also have the
capabilities to model in ABS. We expect to introduce other materials on the
Titan platform in the future. Parts made of polycarbonate offer superior
strength, temperature, and chemical resistance, and thus are ideal for
demanding functional testing in extreme environments.

     We introduced the Dimension in February 2002. Dimension offers ABS
modeling capabilities in a 3-D Printer platform. The part output from 3-D
printers offered by our competitors has tended to be extremely fragile.
Dimension allows users to create parts from ABS, which offers parts having the
strength required for true

                                       12

<PAGE>

form, fit and function testing. We believe that Dimension, introduced at
$29,900, is the lowest priced system in the rapid prototyping market.

     In March 2002 we introduced the Prodigy Plus. This system incorporates our
WaterWorks soluble support system on the Prodigy platform, and is further
enhanced by the addition of our Insight software, which offers speed and
performance improvements over those of our Benchtop systems. Commercial
shipments are expected to commence in May 2002.

     Net revenue in 2001 derived from our rapid prototyping devices, modeling
materials, and maintenance increased by $1,961,035, or 5.5%, over the revenue
reported in the prior year. However, gross unit shipments declined to 277 from
297 gross unit shipments in 2000, as we shipped considerably more high-end
systems such as Titan in 2001. Our gross profit declined slightly to 61.2% of
sales in 2001 from 61.6% in 2000, as the average selling price of many of our
older product lines declined as compared with 2000 and our manufacturing
overhead expenses increased. The mix shift to sales of our high-end systems was
not sufficient to offset these other trends. In any given period, our gross
profit can be significantly impacted by shifts in our product mix and sales
volume.

     We had a layoff in January 2001 that reduced our headcount of employees
and contractors by approximately 8%. The goal of this downsizing was to
position our company for greater profitability as we improved our top line
growth. This downsizing, accompanied by other expense cuts, resulted in reduced
levels of spending on both research and development ("R&D") and on our selling,
general and administrative ("SG&A") expenses in 2001. R&D expenditures amounted
to $4,915,098 in 2001 as compared with $6,366,800 in 2000, and as a percentage
of sales declined to 13.1% of revenue in 2001 from 17.9% of revenue in 2000.
SG&A expenses declined to $14,597,862 in 2001 from $15,232,662 in 2000, and as
a percentage of sales declined to 38.9% of revenue in 2001 from 42.8% of
revenue in 2000. On revenue growth of $1,961,035 in 2001 as compared with 2000,
our operating profit improved by $3,138,805, or almost 900%, as compared with
the operating profit reported in 2000.

     Our strategy in 2002 is to expand our position in the 3-D printing market
and our other core businesses. We anticipate that we will continue to control
our expenses while we expand our revenue growth. We believe that the 3-D
printing market represents a significant growth area. With the introduction of
Dimension, we believe that this product will have a significant positive impact
on our 2002 results. However, since the market for this product is unproven, we
may not be able to achieve the anticipated benefits from the introduction of
the Dimension. We remain fully committed to the continued growth of our
historic core business, which is represented by our Maxum, Titan, Prodigy Plus,
and FDM 3000 systems. We also believe that our service, consumable, and
maintenance revenues derived from all our systems will also improve over the
results attained in 2001. However, we continue to be concerned about the pace
of the economic recovery from the capital goods recession that we and other
capital equipment manufacturers have experienced for the past year. Our ability
to implement our strategy is subject to numerous uncertainties, many of which
are described in this Management's Discussion and Analysis and in the "Forward
Looking Statements and Factors That May Affect Future Results of Operations
Risks" of this Form 10-K. We cannot ensure you that our efforts will be
successful.

     In addition to the uncertainly of future revenues from new or existing
products, expenses associated with the new product launch of Dimension should
cause some increase to SG&A expenses in 2002 over the run rates recorded over
the past several quarters. Many of these expenses will be incurred in the first
half of 2002, before we recognize any significant revenue from the Dimension.
Therefore, we expect that our operating margins will be negatively impacted in
the first half, and possibly the full year, of 2002 as compared with 2001.
Additionally, depending upon product mix, there could be a negative impact on
gross margins throughout the year, since gross margins are not consistent
across all product lines.

     Our operating results could be adversely affected if the downturn in
general economic conditions experienced by most capital equipment manufacturers
in 2001 were to continue in 2002. Our expense levels are based in part on our
expectations of future revenues. Our planning assumes that the economic
conditions affecting capital equipment manufacturers will not decline from the
levels of 2001, and will slowly improve by mid-2002. If general economic
conditions should worsen or the recovery takes longer than we expect, the
revenues we recognize could be severely impacted. Additionally, our backlog is
limited and will have a minimal effect on our 2002 results. These factors may
lead to operating losses in certain quarters, and reduced operating and gross
profits as compared with the results

                                       13

<PAGE>

reported in 2001. While we have adjusted, and will continue to adjust, our
expense levels based on revenues, fluctuations in revenues in a particular
period could adversely impact our operating results.

     We believe that the rapid prototyping industry is growing at approximately
5-10% per year and that 3-D printers and office modelers account for more than
30% of the total units of rapid prototyping systems shipped. Furthermore, we
believe the 3-D Printing segment of this market is the fastest growing
component of the market, and that our Dimension system, based upon price and
performance, is positioned to capture an increased share of this market. We
believe that there is a long-term trend toward lower priced rapid prototyping
systems capable of producing functional prototypes. This pricing trend should
lead to growth in the more traditional functional prototyping marketplace as
companies continue to address in-house rapid prototyping and concept-modeling
needs. Certain market segments in the industry have not demonstrated
significant pricing sensitivity.  These segments are more interested in
modeling envelope size, modeling material, throughput, part quality, part
durability, and rapid tooling, which should allow growth to continue for higher
priced rapid prototyping systems that address these needs, such as our Maxum
and Titan systems.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

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

<TABLE>
<CAPTION>
                                                  For the years ended December 31,


                                                         2001       2000

<S>                                                     <C>         <C>
Net sales                                               100.0%      100.0%
Cost of sales                                            38.8%       38.4%
Gross margin                                             61.2%       61.6%
Selling, general, and administrative expenses            38.9%       42.8%
Research & development expense                           13.1%       17.9%
Operating income                                          9.3%        1.0%
Other income                                               .1%        1.6%
Income before taxes                                       9.4%        2.6%
Income taxes (benefit)                                    2.7%        (.2%)
Net income                                                6.7%        2.8%
</TABLE>

Net Sales

     Net sales for the year ended December 31, 2001 were $37,571,582, compared
with sales of $35,610,547 for the year ended December 31, 2000. This represents
an increase of $1,961,035, or 5.5%. Sales of our Benchtop systems were strong
in 2001, and constituted our largest product line. However, sales of these
systems declined when compared with the prior year. Maxum, Titan and Prodigy
system sales also contributed significantly to our 2001 results, with Prodigy
showing the strongest year over year growth of any of our systems that were
available in 2000. Revenues from consumable and maintenance also increased in
the twelve months ended December 31, 2001 as compared with the same 2000
period.  Maintenance and materials revenues were enhanced by the larger
installed base of systems, customer satisfaction with ABS, WaterWorks,
polycarbonate, and other material selections, and continued emphasis on the
sale of maintenance contracts.

     Our gross shipments of systems amounted to 277 systems in 2001 compared
with 297 systems in 2000. System sales in 2001 included gross shipments of all
systems, including trade-in and upgrades. The average selling price of our
systems increased in 2001 as compared with 2000, and was significantly
influenced by sales of our Titan and Prodigy systems. Product mix can
dramatically affect the average selling price in any period. We ended 2001 with
an order backlog under $500,000 compared with an order backlog of approximately
$7,000,000 at December 31,

                                       14

<PAGE>

2000. However, not all the 2000 backlog shipped in 2001, and a number of
customers cancelled orders due to declining business conditions.

     Domestic sales accounted for approximately 51% of total revenue in 2001,
down from the 52% recorded in 2000. In the United States, the eastern and
central regions recorded the highest revenue. Europe accounted for
approximately 21% of total revenue in 2001, an improvement from 19% of revenue
recorded in 2000. Our combined Asia-Pacific region, which comprises Japan,
China, the Far East and India, accounted for approximately 24% of total
revenue, comparable to the 24% attained in 2000. The Asia-Pacific region
benefited from an approximately $1 million order for multiple Maxum systems
that shipped at the end of the year. This was the largest order in the history
of our Company. We believe that 2002 sales into our Asia Pacific and European
regions will remain strong, and that United States market will improve by the
third quarter of the year. However, our future sales and profitability could be
adversely impacted by declining economic conditions in any of these regions.

Gross Profit

     Gross profit increased to $23,000,767, or 61.2% of sales, in the year
ended December 31, 2001, compared with $21,948,464, or 61.6% of sales, in the
year ended December 31, 2000. This represents an improvement of $1,052,303, or
4.8%.  Gross profit improved due to a shift in our product mix to higher-priced
systems that have better margins. This would include systems such as our Maxum
and Titan, the sales of which were especially strong in the fourth quarter of
the year. Increased overhead expenses and write-offs of approximately $660,000
of inventory for obsolescence and scrap negatively impacted margins in 2001.

Operating Expenses

     SG&A expenses decreased to $14,597,862 for the year ended December 31,
2001, from $15,232,662 for the year ended December 31, 2000. This represents a
decrease of $634,800, or 4.2%. Reductions to salaries and wages, travel, and
general office expenses accounted for much of the decrease in 2001 as compared
with 2000.

     R&D expenses declined to $4,915,098 for the year ended December 31, 2001
from $6,366,800 for the year ended December 31, 2000. The decrease in 2001 from
2000 amounted to $1,451,702, or 22.8%. Decreases for salaries, wages, benefits,
and contract labor accounted for most of the reductions, a direct result of our
January 2001 layoff where we reduced our staff by approximately 8%.

     Our operating income for the year ended December 31, 2001 amounted to
$3,487,807, or 9.3% of sales, compared with operating income of $349,002, or
1.0% of sales, for the year ended December 31, 2000.

Other Income

      Other income and expense netted to $35,250 in 2001 compared with $576,886
in 2000. Interest income amounted to $306,068 in 2001 compared with $551,841 in
2000. The reduction in interest income was primarily due to the reduction to
interest rates that occurred throughout 2001. Interest expense increased to
$103,732 in 2001 from $69,545 in 2000, primarily due to interest on the
mortgage for the acquisition of our manufacturing facility.

Net Income

     For the reasons cited above, net income for 2001 amounted to $2,513,185,
or 6.7% of sales, compared with net income of $988,301, or 2.8% of sales in
2000.  This resulted in 2001 income per diluted common and common share
equivalent of $.46 compared income per diluted common and common equivalent
share of $. 17 for the period ended December 31, 2000.

                                       15

<PAGE>

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

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

                                                      FOR THE YEARS ENDED
                                                         DECEMBER 31,
                                                     --------------------
                                                       2000        1999
                                                     -------      -------
Net sales.......................................      100.0%       100.0%
Cost of sales...................................       38.4%        34.4%
Gross margin....................................       61.6%        65.6%
Selling, general, and administrative expenses...       42.5%        41.5%
Research & development expense..................       17.9%        17.5%
Operating income................................        1.2%         6.6%
Other income....................................        1.4%         1.1%
Income before taxes.............................        2.6%         7.7%
Income taxes (benefit)..........................        (.2)%        2.0%
Net income......................................        2.8%         5.7%

Net Sales

    Net sales for the year ended December 31, 2000 were $35,610,547, compared
with sales of $37,586,938 for the year ended December 31, 1999. This represents
a decrease of $1,976,391, or 5.3%. Sales of our Benchtop systems were
particularly strong in 2000, and constituted our strongest product line. Prodigy
system sales also contributed significantly to our 2000 results following its
July 2000 introduction. Consumable and maintenance revenues also increased in
the twelve months ended December 31, 2000 as compared with 1999. Maintenance and
materials revenues were enhanced by the larger installed base of systems,
customer satisfaction with ABS, WaterWorks, and other material selections, and
continued emphasis on the sale of maintenance contracts.

    Our gross shipments amounted to 297 systems in 2000 compared with 293
systems in 1999. System sales in 2000 included gross shipments of all systems,
including trade-in and upgrade systems. The average selling price of our systems
declined in 2000 as compared with 1999, which was significantly influenced by
product mix shifts. Product mix can dramatically affect the average selling
price in any period. We ended 2000 with an order backlog in excess of $7,000,000
compared with an order backlog of approximately $3,900,000 at December 31, 1999.
The 2000 year-end backlog is the highest in our history.

    Domestic sales accounted for approximately 52% of total revenue in 2000,
comparable to the 52% recorded in 1999. In the United States, the central region
recorded the highest revenue. Europe accounted for approximately 19% of total
revenue in 2000, an improvement from 18% of revenue recorded in 1999. Our
combined Asia-Pacific region, which comprises Japan, China, the Far East and
India, accounted for approximately 23% of total revenue, down from the 29%
attained in 1999. We believe that year 2001 sales into our Asia Pacific and
European regions will remain strong. No assurances, however, can be given that
future sales and profitability will not be adversely impacted by the economic
conditions of these regions.

Gross Profit

    Gross profit decreased to $21,948,464, or 61.6% of sales, in the year ended
December 31, 2000, compared with $24,675,038, or 65.6% of sales, in the year
ended December 31, 1999. This represents a deterioration of $2,726,574, or
11.0%. Gross profit decreased due to a shift in our product mix to lower-priced
systems, increased overhead expenses, and write-offs of approximately $600,000
of inventory for obsolescence and scrap.

Operating Expenses

    SG&A expenses decreased to $15,138,072 for the year ended December 31, 2000,
from $15,611,257 for the year ended December 31, 1999. This represents a
decrease of $473,185, or 3.0%. Reductions to commissions, amortization, and
warranty expenses accounted for much of the decrease in 2000 as compared with
1999.

                                       16

<PAGE>

    R&D expenses declined to $6,366,800 for the year ended December 31, 2000
from $6,583,120 for the year ended December 31, 1999. The decrease in 2000 from
1999 amounted to $216,320, or 3.3%. Increases to personnel expenses were more
than offset by reductions to contract labor and materials in 2000. In early
January 2001, we announced a layoff in which approximately 8% of our headcount,
some of whom were contractors, were terminated. These cuts were concentrated in
the R&D and selling departments. Future expense savings should amount to
approximately $2,000,000. A provision for severance and outplacement expenses
was taken in the fourth quarter and is reflected in our operating expenses of
the period.

    Our operating income for the year ended December 31, 2000 amounted to
$443,592, or 1.2% of sales, compared with operating income of $2,480,661, or
6.6% of sales, for the year ended December 31, 1999.

Other Income

    Other income and expense netted to $482,296 in 2000 compared with $408,988
in 1999. Interest income amounted to $551,841 in 2000 compared with $452,855 in
1999. Interest expense increased $69,545 in 2000 from $43,867, representing the
financing effect of higher capitalized lease balances.

Net Income

    For the reasons cited above, net income for 2000 amounted to $988,301, or
2.8% of sales, compared with net income of $2,143,649, or 5.7% of sales in 1999.
This resulted in 2000 income per diluted common and common equivalent share of
$.17 compared with income per diluted common and common equivalent share of $.37
for the period ended December 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

     Operating activities during 2001 provided cash of $6,244,376, primarily
reflecting our net income of $2,513,185, a decrease in inventories of
$1,464,046, and an increase to unearned maintenance revenues of $192,416.
Unearned maintenance revenues increased as a result of continued selling
emphasis and larger installed base of customers. An increase to accounts
receivable used cash of $636,223 in 2001. The increase to accounts receivable
was due to a significant number of shipments late in the fourth quarter, coupled
with heavier international sales throughout the year. International sales
generally take longer to collect than domestic ones. Operating activities during
2000 provided cash of $663,286, primarily reflecting our 2000 net income of
$988,301, an increase to unearned maintenance contracts of $391,752, and a
decrease in accounts receivable of $259,742. An increase to inventory balances
used cash of $2,455,553 in 2000.

     Our investing activities used cash of $4,429,215 in 2001, reflecting the
acquisition of property and equipment of $3,928,177 and the payments for
intangible assets, including patents, of $501,038. We purchased our
manufacturing facility and surrounding land for approximately $3,100,000 in
2001. Our investing activities provided cash of $4,445,221 in 2000, including
net proceeds of $6,000,620 from the sale of marketable securities. In 2000 we
used cash to acquire property and equipment and for payments of intangible
assets of $978,359 and $577,040, respectively

      In 2001 our financing activities provided cash of $1,670,346, which
included proceeds from a mortgage payable of $2,287,500. We used cash for the
purchase of treasury stock and for payments of obligations under capital leases
of $449,439 and $187,692, respectively. In 2000, our financing activities used
net cash of $878,915, which included $731,135 for the purchase of treasury stock
under our stock buyback program and $230,229 for payments of obligations under
capital leases.

     The net increase in cash in 2001, for the reasons cited above, amounted to
$3,474,092. In 2000, the net increase in cash amounted to $4,204,907. Our ending
cash and cash equivalents balance as of December 31, 2001 and 2000 was
$10,211,398 and $6,737,306, respectively.

     In 2002 our cash will be used for working capital purposes; for
improvements to our manufacturing facility; for new product development and
sustaining engineering; for the acquisition of equipment, including production

                                       17

<PAGE>

equipment, tooling, and computers; for the purchase of intangible assets,
including patents; for increased selling and marketing activities, especially as
they relate to the Dimension product launch and market development; and for our
common stock buyback program. We purchased 88,400 shares of our common stock for
an aggregate cost of $449,439 in 2001. In February 2002 we announced a new
buyback program for up to $1,000,000 of our stock, and increased that to
$2,000,000 in March 2002. Through March 15, 2002, we have purchased
approximately $1,900,0000 of our common stock under the $2,000,000
authorization. While we believe that the primary source of liquidity in 2001
will be derived from current cash balances and cash flows from operations, we
have maintained a line of credit for the lesser of $4,000,000 or a defined
borrowing base. To date, we have not borrowed against this credit facility.

     As of December 31, 2001, we had gross accounts receivable of $12,695,626,
less an allowance of $562,888 for returns and doubtful accounts. Historically,
our bad debt expense has been minimal. However, at December 31, 2001, large
balances were concentrated with certain international distributors. Default by
one or more of these distributors would result in a significant charge against
our current reported earnings. While we can give no assurances, we believe that
most, if not all, of the accounts receivable balances will ultimately be
collected.

     Our total current assets amounted to $30,026,597 at December 31, 2001, the
majority of which consisted of cash, cash equivalents, inventories and accounts
receivable. Total current liabilities amounted to $8,432,349. Our debt is
minimal, consisting of a mortgage payable of $2,270,977 and principal payments
due under a capital lease of $130,320. We will pay off the capital lease by the
end of 2002. We estimate that we will spend approximately $1,300,000 in 2002 for
facility improvements, production and R&D equipment, computers and integrated
software, and tooling. As of December 31, 2001, material commitments for
inventory purchases from selected vendors for the ensuing twelve-month period
ending December 31, 2002 should amount to approximately $2,200,000. We intend to
finance these purchases from existing funds or from cash flows from operations.

INFLATION

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

FOREIGN CURRENCY TRANSACTIONS

     Prior to 2001, substantially all of our recognized revenues from foreign
sales were invoiced in United States dollars. Therefore, our exposure to foreign
currency exchange rates was immaterial. Commencing in late 2000 and continuing
throughout 2001, we began to invoice sales in certain regions to euros. Our
reported results have been subject to fluctuations based upon changes in the
exchange rates of these currencies in relation to the United States dollar. We
have hedged using forward foreign exchange contracts in both the second and
third quarters of 2001, although both involved relatively small positions. We
will continue to monitor our exposure to currency fluctuations, and, when
appropriate, may use financial hedging techniques in the future. Instruments to
hedge our risks may include foreign currency forward, swap, and option
contracts. These instruments will be used to selectively manage risk but there
can be no assurances that we will be fully protected against material foreign
currency fluctuations. Translation exposure to our balance sheet with respect
to foreign operations is not hedged. We expect to continue to derive most of
our revenue from regions where the transactions are negotiated, invoiced, and
paid in US dollars. Fluctuations in the currency exchange rates in these other
countries may therefore reduce the demand for our products by increasing the
price of our products in the currency of countries in which the local currency
has declined in value.

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

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

                                       18

<PAGE>

consumables, our ability to maintain our gross margins on these sales, and our
plans and objectives to introduce new products, control expenses, improve the
quality and reliability of our systems, and improve profitability. The
forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions, among others, that we (1) will be able to
continue to introduce new rapid prototyping systems acceptable to the market and
improve our existing technology and software in our current product offerings,
(2) will be able to successfully launch the new Dimension product, and that the
market will accept this product, (3) will be able to maintain our gross margins
on our present products, (4) will be able to control our operating expenses, and
(5) will be able to retain and recruit employees with the necessary skills to
produce, develop, market, and sell our products. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive, market and technology conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of those assumptions could prove inaccurate, and therefore there is and can be
no assurance that the results contemplated in any such forward-looking statement
will be realized. The impact of actual experience and business developments may
cause us to alter our marketing plans, our capital expenditure budgets, or our
engineering, selling, manufacturing or other budgets, which may in turn affect
our results of operations or the success of our new product development and
introduction. Due to the factors noted above and elsewhere in the Management's
Discussion and Analysis of Financial Condition and Results of Operations, our
future earnings and stock price may be subject to significant volatility,
particularly on a quarterly basis. Additionally, we may not learn of revenue or
earnings shortfalls until late in a fiscal quarter, since we frequently receive
the majority of our orders very late in a quarter. This could result in an
immediate and adverse effect on the trading price of our common stock. Past
financial performance should not be considered a reliable indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

    The information that appears following Item 14 of this report and is
incorporated herein by reference.

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

    The Company did not have any changes in or disagreements with its
accountants on accounting and financial disclosure.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

    Incorporated herein by reference to the Company's Definitive Proxy Statement
with respect to the Company's Annual Meeting of Stockholders scheduled to be
held May 9, 2002.

ITEM 11.  EXECUTIVE COMPENSATION.

    Incorporated herein by reference to the Company's Definitive Proxy Statement
with respect to the Company's Annual Meeting of Stockholders scheduled to be
held May 9, 2002.

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

    Incorporated herein by reference to the Company's Definitive Proxy Statement
with respect to the Company's Annual Meeting of Stockholders scheduled to be
held May 9, 2002.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    Incorporated herein by reference to the Company's Definitive Proxy Statement
with respect to the Company's Annual Meeting of Stockholders scheduled to be
held May 9, 2002.

                                       19

<PAGE>

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)  DOCUMENTS

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

<S>                                                                                                        <C>
Independent Auditors Report.........................................................................       F-1
Consolidated Balance Sheets December 31, 2001 and 2000..............................................       F-2
Consolidated Statements of Operations Years ended December 31, 2001, 2000 and 1999..................       F-3
Consolidated Statements of Stockholders' Equity Years ended December 31, 2001, 2000 and 1999........       F-4
Consolidated Statements of Cash Flows Years ended December 31, 2001, 2000 and 1999..................       F-5
Notes to Consolidated Financial Statements..........................................................       F-7

     2. Financial Statement Schedule --

Schedule II-- Valuation and Qualifying Accounts.....................................................      F-20
</TABLE>

     Notes

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

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

     3.  Exhibits

<TABLE>
<CAPTION>

 EXHIBIT
   NO.                                     DESCRIPTION
--------                                   -----------
<S>        <C>
   3.1     Restated Certificate of incorporation of the Company.(3)
   3.2     Amendment to Certificate of Incorporation of the Company.(6)
   3.3     By-Laws of the Company.(1)
  10.1     Non-Competition Agreement between the Company and S. Scott Crump,
           dated October 15, 1990.(1)
  10.2     Non-Competition Agreement between the Company and S. Lisa Crump,
           dated October 15, 1990.(1)
  10.3     Employee Confidentiality Agreement between the Company and S. Scott
           Crump, dated October 15, 1990.(1)
  10.4     Employee Confidentiality Agreement between the Company and Lisa
           Crump, dated October 15, 1990.(1)
  10.5     Stratasys, Inc. Employee Stock Option Plan #1.(1)
  10.6     Amended and Restated Stratasys, Inc. 1994 Stock Plan.(3)
  10.7     Second Amended and Restated Stratasys, Inc. 1994-2 Stock Plan.(8)
  10.8     Stratasys, Inc. 1998 Incentive Stock Option Plan.(10)
  10.9     Asset Purchase Agreement between the Company and IBM dated
           January 1, 1995.(4)
 10.10     Stratasys, Inc. 2000 Incentive Stock Option Plan.(13)
 10.11     Equipment Lease Agreement between the Company and IBM dated
           January 1, 1995.(4)
 10.12     Assignment, dated October 23, 1989, from S. Scott Crump to the
           Company with respect to a patent application for an apparatus and
           method for creating three-dimensional objects.(7)
 10.13     Assignment, dated June 5, 1992, from S. Scott Crump to the Company
           with respect to a patent application for a modeling apparatus for
           three dimensional objects.(7)
 10.14     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
</TABLE>

                                       20

<PAGE>
<TABLE>
<S>        <C>

           removal for three-dimensional modeling.(7)

 10.15     Lease between the Company and Welsh Edenvale Partners '86, dated
           October 9, 1992.(1)
 10.16     Amendment #4 to Lease between the Company and Welsh Edenvale
           Partners '86, dated October 9, 1992, between the Company and
           Carpenter Land Company LLP, dated July 27, 1998.(14)
 10.17     Warrant Purchase Agreement by and among the Company and certain
           holder's of the Company's Warrants dated September 30, 1998.(11)
 10.18     Technology Sale and Assignment Agreement, between the Company and
           SEK Technologies LLC, dated as of December 21, 1998.(12)
 10.19     User Agreement, between the Company and SEK Technologies LLC, dated
           as of August 21, 1997.(12)
 10.20     Option Agreement, between the Company and SEK Technologies LLC, dated
           August 21, 1997.(12)
 10.21     Form of Registration Rights Agreement, between the Company and
           holders of Investment Units in SEK Technologies LLC, dated as of
           January 4, 1999.(12)
  21.1     Subsidiaries of the Company.(14)
  23.1     Consent of Rothstein, Kass & Company, P.C.
</TABLE>

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

(1)    Incorporated by reference from the Company's Registration Statement on
       Form SB-2 (File No. 33-83638-C) filed September 2, 1994.

(2)    Incorporated by reference from the Company's Form 8-K, dated August 24,
       1995.

(3)    Incorporated by reference from the Company's Form 10-KSB for the year
       ended December 31, 1994.

(4)    Incorporated by reference from the Company's Form 8-K, Amendment No. 2,
       dated January 1, 1995.

(5)    Incorporated  by reference from the Company's Registration Statement on
       Form SB-2 (File No. 33-99108) filed November 8, 1995.

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

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

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

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

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

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

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

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

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

(b)  REPORTS ON FORM 8-K

     None.

                                       21

<PAGE>

                        STRATASYS, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                                       AND
                          INDEPENDENT AUDITORS' REPORT

                           DECEMBER 31, 2001 AND 2000

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

CONTENTS

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

Independent Auditors' Report                                             F-1

Consolidated Financial Statements

    Balance Sheets                                                       F-2

    Statements of Operations                                             F-3

    Statements of Stockholders' Equity                                   F-4

    Statements of Cash Flows                                         F-5-F-6

    Notes to Financial Statements                                   F-7-F-19

    Schedule II - Valuation and Qualifying Accounts and Reserves        F-20

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
Stratasys, Inc.

We have audited the accompanying consolidated balance sheets of Stratasys, Inc.
and Subsidiaries (the "Company") as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows and financial statement schedule for each of the three years in the period
ended December 31, 2001. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Stratasys, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion the
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.

                                             /S/ ROTHSTEIN, KASS & COMPANY

Roseland, New Jersey
February 1, 2002

                                                                             F-1

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
===============================================================================================
DECEMBER 31,                                                           2001           2000
-----------------------------------------------------------------------------------------------

<S>                                                              <C>               <C>
ASSETS

Current assets
  Cash and cash equivalents                                      $  10,211,398     $  6,737,306
  Accounts receivable, less allowance for returns and
   doubtful accounts of $562,888 in 2001 and $458,359
   in 2000                                                          12,132,738       11,496,515
  Inventories                                                        6,877,582        9,102,818
  Prepaid expenses                                                     558,879          673,230
  Deferred income taxes                                                246,000          229,000
                                                                 -------------------------------
      Total current assets                                          30,026,597       28,238,869
                                                                 -------------------------------
Property and equipment, net                                          6,006,529        2,905,620
                                                                 -------------------------------

OTHER ASSETS
  Intangible assets, net                                             3,288,222        3,521,561
  Deferred income taxes                                              2,363,000        2,687,000
  Other                                                                266,997          228,681
                                                                 -------------------------------
                                                                     5,918,219        6,437,242
                                                                 -------------------------------
                                                                 $  41,951,345     $ 37,581,731
                                                                 ===============================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Obligations under capital leases, current portion              $     130,320     $    187,692
  Mortgage payable, current portion                                     54,994
  Accounts payable and other current liabilities                     3,736,284        3,719,309
  Unearned maintenance revenues                                      4,510,751        4,318,335
                                                                 -------------------------------
      Total current liabilities                                      8,432,349        8,225,336
                                                                 -------------------------------
Long-term liabilities
  Obligations under capital leases, less current portion                                130,320
  Mortgage payable, less current portion                             2,215,983
                                                                 -------------------------------
                                                                     2,215,983          130,320
                                                                 -------------------------------

COMMITMENTS

Stockholders' equity
  Common stock, $.01 par value, authorized 15,000,000 shares;
   issued 6,133,294 shares in 2001 and 6,125,994
   shares in 2000                                                       61,333           61,260
  Capital in excess of par value                                    32,943,974       32,907,547
  Retained earnings (deficit)                                        1,797,606         (715,579)
  Accumulated other comprehensive loss                                 (72,084)         (48,776)
  Less cost of treasury stock, 740,400 shares in
  2001 and 652,000 shares in 2000                                   (3,427,816)      (2,978,377)
                                                                 -------------------------------
      Total stockholders' equity                                    31,303,013       29,226,075
                                                                 -------------------------------
                                                                 $  41,951,345     $ 37,581,731
                                                                 ===============================
</TABLE>

See accompanying notes to consolidated financial statements.

                                                                            F-2

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
====================================================================================================
YEARS ENDED DECEMBER 31,                                2001             2000              1999
----------------------------------------------------------------------------------------------------

<S>                                                <C>               <C>               <C>
SALES                                              $  37,571,582     $  35,610,547     $  37,586,938

Cost of sales                                         14,570,815        13,662,083        12,911,900
                                                   --------------------------------------------------
Gross profit                                          23,000,767        21,948,464        24,675,038
                                                   --------------------------------------------------

COSTS AND EXPENSES
  Research and development                             4,915,098         6,366,800         6,583,120
  Selling, general and administrative                  4,597,862        15,138,072        15,611,257
                                                   --------------------------------------------------
                                                      19,512,960        21,504,872        22,194,377
                                                   --------------------------------------------------

OPERATING INCOME                                       3,487,807           443,592         2,480,661
                                                   --------------------------------------------------

OTHER INCOME (EXPENSE)
  Interest and other income                              306,068           551,841           452,855
  Interest and other expense                            (270,818)          (69,545)          (43,867)
                                                   --------------------------------------------------
                                                          35,250           482,296           408,988
                                                   --------------------------------------------------

Income before income taxes (benefit)                   3,523,057           925,888          ,889,649

Income taxes (benefit)                                 1,009,872           (62,413)          746,000
                                                   --------------------------------------------------

NET INCOME                                         $   2,513,185     $     988,301     $   2,143,649
                                                   ==================================================

Income per common and common equivalent share
  Basic                                            $        0.46     $        0.18     $        0.37
                                                   ==================================================
  Dilluted                                         $        0.46     $         0.17    $        0.37
                                                   ==================================================

Weighted average number of common and
common equivalent shares outstanding
  Basic                                                5,461,989          5,527,144        5,775,945
                                                   ==================================================
  Diluted                                              5,492,852          5,684,318        5,779,340
                                                   ==================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                                                             F-3

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

<TABLE>
<CAPTION>
================================================================================================
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
------------------------------------------------------------------------------------------------

                                                                    CAPITAL IN     RETAINED
                                                COMMON STOCK        EXCESS OF      EARNINGS
                                              SHARES     AMOUNT     PAR VALUE      (DEFICIT)

<S>                                           <C>        <C>       <C>           <C>
Balances, January 1, 1999                     6,100,524  $ 61,005  $ 32,710,484  $ (3,847,529)

Exercise of stock options                         1,437        15         2,271

Net income                                                                          2,143,649

Other comprehensive loss
Cumulative translation adjustment

Total comprehensive income

Purchase of 405,300 shares of treasury stock
                                              --------------------------------------------------

Balances, December 31, 1999                   6,101,961    61,020    32,712,755    (1,703,880)

Exercise of stock options and warrants           24,033       240        82,209

Warrants issued for services                                            112,583

Net income                                                                            988,301

Other comprehensive loss
Cumulative translation adjustment                                                      (9,168)

Total comprehensive income

Purchase of 109,400 shares of treasury stock
                                              --------------------------------------------------
Balances, December 31, 2000                   6,125,994    61,260    32,907,547      (715,579)


Exercise of stock options                         7,300        73        36,427

Net income                                                                          2,513,185

Other comprehensive loss
Cumulative translation adjustment


Total comprehensive income

Purchase of 88,400 shares of treasury stock
                                              --------------------------------------------------
Balances, December 31, 2001                   6,133,294  $ 61,333  $ 32,943,974    $1,797,606
                                              ==================================================

<CAPTION>
                                              ACCUMULATED
                                                OTHER
                                              COMPREHENSIVE     TREASURY                       COMPREHENSIVE
                                                 LOSS             STOCK             TOTAL        INCOME
<S>                                           <C>             <C>                <C>               <C>
Balances, January 1, 1999                     $ (38,956)     $   (781,927)       $ 28,103,077

Exercise of stock options                                                               2,286

Net income                                                                          2,143,649      $ 2,143,649

Other comprehensive loss
Cumulative translation adjustment                  (652)                                 (652)            (652)
                                                                                                    -----------
Total comprehensive income                                                                          $ 2,142,997
                                                                                                    ===========
Purchase of 405,300 shares of treasury stock                   (1,465,315)         (1,465,315)
                                              ------------------------------------------------

Balances, December 31, 1999                     (39,608)       (2,247,242)         28,783,045

Exercise of stock options and warrants                                                 82,449

Warrants issued for services                                                          112,583

Net income                                                                            998,301      $    988,301

Other comprehensive loss
Cumulative translation adjustm                   (9,168)                               (9,168)           (9,168)
                                                                                                   -------------
Total comprehensive income                                                                         $    979,133
                                                                                                   =============
Purchase of 109,400 shares of treasury stock                     (731,135)          (731,135)
                                               -----------------------------------------------------------------

Balances, December 31, 2000                     (48,776)       (2,978,377)        29,226,075

Exercise of stock options                                                             36,500

Net income                                                                         2,513,185        $ 2,513,185

Other comprehensive loss
Cumulative translation adjustment               (23,308)                             (23,308)           (23,308)
                                                                                                    ------------
                                                                                                    $ 2,489,877
                                                                                                    ============

                                                                 (449,439)           (449,439)
                                              --------------------------------------------------
                                              $ (72,084)     $ (3,427,816)       $ 31,303,013
                                              ==================================================
</TABLE>

See accompanying notes to consolidated financial statements

                                                                             F-4

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
==========================================================================================================
YEARS ENDED DECEMBER 31,                                       2001              2000          1999
----------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>            <C>
Cash flows from operating activities
 Net income                                                 $  2,513,185     $   988,301     $  2,143,649
 Adjustments to reconcile net income to net
  cash provided by operating activities:
   Deferred income taxes                                         307,000        (195,000)         594,000
   Depreciation                                                1,545,198       1,302,893        1,265,396
   Amortization                                                  734,377         465,187          638,643
   Warrants issued for services                                                  112,583
   Loss on disposal of property and equipment                     41,720           4,686           77,474
   Increase (decrease) in cash attributable to changes
   in assets and liabilities
      Accounts receivable                                       (636,223)        259,742       (1,917,421)
      Inventories                                              1,464,046      (2,455,553)      (1,611,677)
      Prepaid expenses                                           114,032        (246,352)         166,859
      Other assets                                               (38,796)        154,613         (206,894)
      Accounts payable and other current liabilities               7,421        (119,566)         267,609
      Unearned maintenance revenues                              192,416         391,752        1,276,759
                                                            ----------------------------------------------

Net cash provided by operating activities                      6,244,376         663,286        2,694,397
                                                            ----------------------------------------------

Cash flows from investing activities
   Proceeds from sale of marketable securities                                13,500,000       23,500,000
   Acquisition of marketable securities                                       (7,499,380)     (24,927,971)
   Acquisition of property and equipment                      (3,928,177)       (978,359)        (628,290)
   Proceeds from sale of property and equipment                                                    82,500
   Purchased in-process research and development                                               (6,464,709)
   Payments for intangible assets                               (501,038)       (577,040)      (1,330,761)
                                                            ----------------------------------------------

Net cash provided by (used in) investing activities           (4,429,215)      4,445,221       (9,769,231)
                                                            ----------------------------------------------
Cash flows from financing activities
   Proceeds from mortgage payable                              2,287,500
   Payments of obligations under capital leases                 (187,692)       (230,229)        (183,752)
   Payments of mortgage payable                                  (16,523)
   Exercise of stock options and warrants                         36,500          82,449            2,286
   Purchase of treasury stock                                   (449,439)       (731,135)      (1,465,315)
                                                            ----------------------------------------------

Net cash provided by (used in) financing activities            1,670,346        (878,915)      (1,646,781)
                                                            ----------------------------------------------

Effect of exchange rate changes on cash                          (11,415)        (24,645)          10,135
                                                            ----------------------------------------------

Net increase (decrease) in cash and cash equivalents           3,474,092       4,204,947       (8,711,480)

Cash and cash equivalents, beginning of year                   6,737,306       2,532,359       11,243,839
                                                            ----------------------------------------------
Cash and cash equivalents, end of year                      $ 10,211,398     $ 6,737,306     $  2,532,359
                                                            ==============================================
</TABLE>

See accompanying notes to consolidated financial statements

                                                                             F-5

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
================================================================================================
YEARS ENDED DECEMBER 31,                                2001            2000          1999
<S>                                                  <C>             <C>            <C>
Supplemental disclosures of cash flow
 information, cash paid during the year for:
  Interest                                           $     89,298    $   69,545     $    43,867
                                                     ===========================================

  Income taxes                                       $    138,692    $  253,265     $
                                                     ===========================================

Supplemental schedules of noncash investing and
 financing activities:

  Machinery and equipment aquired under
  capital lease obligations                          $               $              $   369,997
                                                     ===========================================

  Machinery and equipment transferred from
  inventory                                          $    761,190    $              $
                                                     ===========================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                                                           F-6

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Stratasys, Inc. and Subsidiaries (collectively the "Company") develops,
manufactures and markets a family of rapid prototyping systems ("RPS") and
devices that permit engineers and designers to create physical models and
prototypes, made of various materials, utilizing three dimensional Computer
Aided Design ("3D CAD") files at a CAD workstation. The Company sells these
devices and the related consumable materials and maintenance worldwide.

Principles of Consolidation

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

Fair Value of Financial Instruments

The fair value of the Company's assets and liabilities, which qualify as
financial instruments under Statement of Financial Accounting Standards (SFAS)
No. 107, "Disclosures About Fair Value of Financial Instruments", approximate
the carrying amounts presented in the consolidated balance sheets.

Cash Equivalents

The Company considers all highly-liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

Inventories

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

Impairment of Long-Lived Assets

The Company periodically assesses the recoverability of the carrying amounts of
long-lived assets, including intangible assets. A loss is recognized when
expected undiscounted future cash flows are less than the carrying amount of the
asset. The impairment loss is the difference by which the carrying amount of the
asset exceeds its fair value.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed using the straight-line
method over the estimated useful lives of the assets ranging from 3-30 years.

                                                                            F-7

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Intangible Assets

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

<TABLE>
<S>                                                         <C>
RPS Technology                                              11 years
Capitalized software development costs                       3 years
Purchased software                                           3 years
Patents                                                     10 years
</TABLE>

The costs of software development, including significant product enhancements,
incurred subsequent to establishing technological feasibility have been
capitalized in accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." Costs incurred
prior to establishment of technological feasibility are charged to research and
development expense.

Unearned Maintenance Revenues

Maintenance revenues are amortized over the term of the related maintenance
contracts, which are typically one to two years.

Revenue Recognition

The Company recognizes revenues from the sale of RPS machines when shipped. The
Company establishes allowances for estimated returns at the time of shipment.
Service revenues, excluding maintenance contracts, are recognized at the time
the services are performed.

Advertising

Advertising costs are charged to operations as incurred and were approximately
$584,000, $704,000, and $652,000 for 2001, 2000 and 1999, respectively.

Research and Development Costs

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

Income Taxes

The Company complies with SFAS No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial reporting of income taxes.
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future, based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
the deferred income tax assets to the amount expected to be realized.

                                                                            F-8

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Income Per Common Share

The Company complies with SFAS No. 128, "Earnings Per Share". SFAS No. 128
requires dual presentation of basic and diluted income per share for all periods
presented. Basic income per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then share in the income of the Company. The
difference between the number of shares used to compute basic income per share
and diluted income per share relates to additional shares to be issued upon the
assumed exercise of stock options and warrants, net of shares hypothetically
repurchased at the average market price with the proceeds of exercise of 30,863
in 2001, 157,174 in 2000, and 3,395 in 1999.

Stock-Based Compensation

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Comprehensive Income

The Company complies with SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes rules for the reporting and display of comprehensive income
and its components; however, the compliance with this Statement has no impact on
the Company's net income or stockholders' equity. SFAS No. 130 requires the
Company's change in the foreign currency translation adjustment to be included
in other comprehensive income.

                                                                            F-9

<PAGE>
STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2. ACCOUNTS RECEIVABLE

At December 31, 2001 and 2000, accounts receivable included balances due from
foreign entities of approximately $8,096,000 and $6,714,000, respectively.

3. INVENTORIES

Inventories consist of the following at December 31:

<TABLE>
<CAPTION>
                    2001                   2000

<S>               <C>                  <C>
Finished goods    $4,539,943           $3,597,770
Raw materials      2,337,639            5,505,048
                  -------------------------------
                  $6,877,582           $9,102,818
                  ===============================
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
                                     2001    2000

<S>                                <C>           <C>
Machinery and equipment            $  4,096,073  $  2,496,029
Building                              2,330,953
Land                                    694,876
Computer equipment and software       3,249,933     3,123,065
Office equipment                        809,666       783,451
Leasehold improvements                1,292,437     1,257,595
Equipment under capital leases          362,402       643,851
                                   --------------------------
                                     12,836,340     8,303,991
                                   --------------------------
Accumulated depreciation and
amortization (including $119,619
in 2001 and $247,726 in 2000
under capital leases)                 6,829,811     5,398,371
                                   --------------------------
                                   $  6,006,529  $  2,905,620
                                   ==========================
</TABLE>

                                                                           F-10

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

5. INTANGIBLE ASSETS

Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
                              2001            2000

<S>                          <C>             <C>
RPS technology               $2,558,532      $2,558,532
Capitalized software
development costs             3,329,699       3,055,663
Purchased software              300,000         300,000
Patents                       1,538,933       1,311,931
Other                            16,344          16,344
                            ---------------------------
                              7,743,508       7,242,470
Accumulated amortization      4,455,286       3,720,909
                            ---------------------------
                             $3,288,222      $3,521,561
                            ===========================
</TABLE>

For the years ended December 31, 2001, 2000 and 1999, amortization of
capitalized software development costs charged to operations was $334,590,
$97,611 and $305,263, respectively.

Included in research and development expense for the years ended December 31,
2001, 2000 and 1999 are computer software development expenditures of
$1,027,647, $1,364,175 and $1,463,692, respectively.

6. CREDIT LINE

The Company has an available line of credit from a financial institution for the
lesser of $4,000,000 or a defined borrowing base. The credit line bears interest
at defined rates based upon two different indexes and expires in June 2002. No
amounts were outstanding at December 31, 2001 and 2000.

                                                                           F-11

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

7. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

Accounts payable and other current liabilities consist of the following at
December 31:
<TABLE>
<CAPTION>
                                         2001         2000

<S>                                 <C>             <C>
Trade                               $   697,608     $  1,456,502
Compensation and related
benefits                              2,063,501        1,621,025
Reserve for warranty expenses           134,529          160,000
Other                                   840,646          481,782
                                    -----------------------------
                                    $ 3,736,284     $  3,719,309
                                    =============================
</TABLE>

8. MORTGAGE PAYABLE

In August 2001, the Company entered into a mortgage agreement with a bank
providing a loan of $2,287,500 which was used for the purchase of land and
building used in the Company's manufacturing operations which was previously
leased. The loan is payable in monthly installments of $18,396, including
interest of 7.38% per annum, with a final payment in July 2006. The loan is
collateralized by the property.

Future principal payments in each of the five years subsequent to December 31,
2001 are as follows:

<TABLE>
<S>                        <C>
Year ending December 31,
    2002                   $     54,994
    2003                         59,163
    2004                         63,712
    2005                         68,576
    2006                      2,024,532
                           ------------
                           $  2,270,977
                           ============
</TABLE>

                                                                           F-12

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

9. INCOME TAXES

The components of the Company's deferred tax assets (liabilities) at December
31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                        2001             2000
<S>                                 <C>             <C>
Net operating loss carryforwards    $     80,000    $    221,000
Depreciation                             198,000          68,000
Amortization                             (32,000)        (41,000)
Allowance for doubtful accounts          118,000          98,000
Reserve for warranty expenses             50,000          59,000
Reserve for sales returns, net            90,000          72,000
Unrealized gain on foreign currency      (12,000)        (35,000)
Federal minimum tax credit
 carryforwards                           162,000         162,000
Research and development tax
 credit carryforwards                  1,955,000       2,312,000
                                   ------------------------------
                                    $  2,609,000    $  2,916,000
                                   ==============================
</TABLE>

At December 31, 2001, the Company had research and development tax credit
carryforwards of approximately $1,955,000, which can be utilized against future
federal income tax and expire in various years through 2020.

Income before income taxes (benefit) consists of the following:

<TABLE>
<CAPTION>
                           2001             2000           1999
<S>                     <C>               <C>           <C>
United States           $  3,446,884      $  822,354    $  2,682,310
Foreign                       76,173         103,534         207,339
                       ----------------------------------------------
                        $  3,523,057      $   925,888   $  2,889,649
                       ==============================================
</TABLE>

                                                                           F-13
<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

9. INCOME TAXES (CONTINUED)

The components of income taxes (benefit) for the years ended December 31, 2001,
2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                       2001              2000              1999
<S>                <C>                 <C>             <C>
Current
  Federal          $    620,803        $   51,831       $   80,000
  State                  46,714            42,765
  Foreign                35,355            37,991           72,000
                ----------------------------------------------------
                        702,872           132,587          152,000
                ----------------------------------------------------

Deferred
  Federal               383,000          (231,000)         463,000
  State                 (76,000)           36,000          131,000
                ----------------------------------------------------
                        307,000          (195,000)         594,000
                ----------------------------------------------------
                   $  1,009,872        $  (62,413)      $  746,000
                ====================================================
</TABLE>

A reconciliation of the statutory federal income tax rate and the effective
tax rate follows:

<TABLE>
<CAPTION>
                                        2001            2000            1999
<S>                                     <C>             <C>            <C>
Federal statutory rate                  34.0%            34.0%          34.0%

Foreign sales corporation
 exclusion                              (3.1)            (3.0)

Earnings of subsidiaries taxed
 at other than U.S. statutory rate       0.1             (1.5)

State income taxes, net of
 federal effect                         (0.8)             8.5            2.9

Permanent differences and other          6.0              4.2            1.0

Utilization of research and
 development tax credit                 (7.5)           (48.9)         (12.1)
                                    -------------------------------------------
Effective income tax rate               28.7%            (6.7)%         25.8%
                                    ===========================================
</TABLE>

                                                                           F-14
<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

10. COMMITMENTS

The Company leases certain of its facilities under leases which expire through
2004.

Aggregate future minimum annual rental payments in the years subsequent to
December 31, 2001 are as follows:

<TABLE>
<S>                                 <C>
Year ending December 31,
    2002                            $  244,100
    2003                               246,065
    2004                               113,827
                                   -------------
                                    $  603,992
                                   =============
</TABLE>

Rent expense for the years ended December 31, 2001, 2000 and 1999 was
approximately $654,000, $666,000 and $712,000, respectively.

The Company leases property and equipment under a capital lease which expires
in 2002. Total minimum lease payments for 2002 amount to $139,898 of which
$9,578 represents interest and $130,320 represents principal.

11. STOCK OPTIONS AND WARRANTS

The Company has five employee stock option plans which have been approved by
the stockholders: Stratasys, Inc.  Employee Incentive Stock Option Plan #1
(Plan 1), Stratasys, Inc. 1994 Incentive Stock Option Plan (Plan 2), Stratasys,
Inc. 1994 - 2 Incentive Stock Option Plan (Plan 3), Stratasys, Inc. 1998
Incentive Stock Option Plan (Plan 4), and Stratasys, Inc.  Incentive Stock
Option Plan (Plan 5). The five plans provide for the granting of options to
qualified employees of the Company, independent contractors, consultants and
other persons to purchase up to 2,050,000 shares of common stock.

All of the 100,034 options under Plan 1 have been granted and the plan expired
April 19, 2001. Under Plans 2, 3, 4, and 5, options to purchase 165,822 shares,
999,128 shares, 420,020 shares, 248,200 shares, respectively, of common stock
have been granted. All options under the above plans are granted at a price not
less than the fair market value of the Company's common stock at the dates of
grant and are principally exercisable over five years. All grants are net of
terminations and expirations.

                                                                           F-15
<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

11. STOCK OPTIONS AND  WARRANTS (CONTINUED)

The following summarizes the information relating to outstanding stock options
and the activity during 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                WEIGHTED
                                      NUMBER                                     AVERAGE
                                        OF              PER SHARE                 OPTION
                                      SHARES           OPTION PRICE                PRICE
<S>                                  <C>           <C>        <C>  <C>           <C>
Shares under option
 at January 1, 1999                    998,216     $  1.59    -    $  23.56      $  12.68
Granted in 1999                        503,100        4.53    -        9.13          5.03
Exercised in 1999                       (1,437)       1.59    -        1.59          1.59
Forfeited in 1999                      (91,340)       5.00    -        9.81          6.34
                                   --------------------------------------------------------
Shares under option
 at December 31, 1999                1,408,539        1.59    -       23.56          7.09
Granted in 2000                        104,232        2.34    -       11.31          7.23
Exercised in 2000                      (19,048)       1.59    -        7.13          3.09
Expired in 2000                        (17,000)       5.38    -        5.38          5.38
Forfeited in 2000                     (152,096)       4.44    -       23.56         18.45
                                   --------------------------------------------------------
Shares under option
 at December 31, 2000                1,324,627        1.59    -       21.81          7.12
Granted in 2001                        283,650        2.76    -        6.24          3.08
Exercised in 2001                       (7,300)       5.00    -        5.00          5.00
Expired in 2001                       (100,300)       5.25    -       17.50         10.55
Forfeited in 2001                      (42,100)       2.34    -        9.13          5.82
                                   --------------------------------------------------------
Shares under option
 at December 31, 2001                1,458,577     $  1.59    -    $  21.81      $   6.73
                                   ========================================================

Options exercisable at
 December 31, 2001                   1,097,847     $  1.59    -    $  21.81      $   7.34
                                   ========================================================
</TABLE>

                                                                           F-16
<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

11. STOCK OPTIONS AND WARRANTS (CONTINUED)

The Company, as part of sales of common stock and other agreements, has issued
warrants to purchase the Company's common stock. The following summarizes the
information relating to outstanding warrants and the activity during 2001, 2000
and 1999:

<TABLE>
<CAPTION>
                                                                 WEIGHTED
                            NUMBER                                AVERAGE
                              OF              PER SHARE           WARRANT
                            SHARES           WARRANT PRICE         PRICE
<S>                         <C>         <C>                     <C>
Shares under warrants
 at January 1, 1999
 and 2000                    236,355    $    5.00  -  $ 15.44   $  12.48
Granted in 2000              121,000         3.60  -     7.00       5.58
Exercised in 2000            (13,000)        5.00  -     5.00       5.00
Expired in 2000              (69,355)       14.00  -    15.44      14.10
Forfeited in 2000            (60,000)        7.00  -     7.00       7.00
                            --------------------------------------------
Shares under warrants
 at December 31, 2000
 and 2001                    215,000    $    3.60  -  $ 13.88   $  10.06
                            ============================================
</TABLE>

                                                                           F-17

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

11. STOCK OPTIONS AND  WARRANTS (CONTINUED)

Had compensation cost for the Company's five stock option plans and stock
purchase warrants been determined based on the fair value at the grant date of
awards in 2001, 2000 and 1999, consistent with the provisions of SFAS 123, the
Company's net income and income per share would have been reduced to the pro
forma amounts indicated below:

<TABLE>
<CAPTION>
                                   2001              2000           1999
<S>                              <C>              <C>              <C>
Net income, as reported          $ 2,513,185      $   988,301      $ 2,143,649
Net income, pro forma            $ 1,987,185      $   536,501      $ 1,721,787
Basic income per share -
  as reported                    $      0.46      $      0.18      $      0.37
Diluted income per share -
  as reported                    $      0.46      $      0.17      $      0.37
Basic income per share -
  pro forma                      $      0.36      $      0.10      $      0.30
Diluted income per share -
  pro forma                      $      0.36      $      0.09      $      0.30
</TABLE>

The Company used the Black-Scholes option pricing model to determine the fair
value of grants made in 2001, 2000 and 1999. The following assumptions were
applied in determining the pro forma compensation cost:

<TABLE>
<CAPTION>
                              2001       2000         1999
<S>                          <C>        <C>        <C>
Risk-free interest rate       5.00       5.94         5.57
Expected option term         4 years    4 years    3-4 years
Expected price volitility      83%        62%          67%
Dividend yield                    -          -            -
</TABLE>

12. EXPORT SALES

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

<TABLE>
<CAPTION>
                    2001          2000          1999
<S>             <C>            <C>            <C>
Europe          $  8,017,111   $  6,657,860   $  6,348,845
Asia Pacific       9,916,468      8,642,917     11,070,532
Other              1,350,352      3,305,884      2,333,956
                ------------------------------------------
                $ 19,283,931   $ 18,606,661   $ 19,753,333
                ==========================================
</TABLE>

                                                                           F-18

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

13. QUARTERLY RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
                          FIRST        SECOND         THIRD        FOURTH
                         QUARTER       QUARTER       QUARTER       QUARTER
<S>                    <C>           <C>           <C>           <C>
2001
  Net sales            $ 8,687,689   $ 9,223,715   $ 9,703,008   $ 9,957,170
  Gross profit           5,098,476     5,532,138     5,931,270     6,438,883
  Net income               197,818       416,309       979,667       919,391
  Income per
   common and common
   equivalent share:
    Basic                     0.04          0.08          0.18          0.16
    Diluted                   0.04          0.08          0.18          0.16

2000
  Net sales            $ 9,298,007   $ 9,023,247   $ 9,001,518   $ 8,287,775
  Gross profit           5,905,715     5,951,616     5,421,570     4,669,563
  Net income               375,764       326,894       171,481       114,162
  Income per
   common and common
   equivalent share:
    Basic                     0.07          0.06          0.03          0.02
    Diluted                   0.06          0.06          0.03          0.02
</TABLE>

                                                                           F-19

<PAGE>

STRATASYS, INC. AND SUBSIDIARIES

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
=============================================================================================================
   COLUMN A                                         COLUMN B         COLUMN C       COLUMN D       COLUMN E

                                                    BALANCE AT       ADDITIONS -    DEDUCTIONS     BALANCE
                                                    BEGINNING         CHARGED         FROM          AT END
   DESCRIPTION                                      OF PERIOD       TO INCOME       RESERVES       OF PERIOD
<S>                                                 <C>           <C>             <C>             <C>
2001
  Reserve for bad debts and allowances              $ 264,260     $    60,000     $     6,305     $ 317,955
                                                   ==========================================================
  Reserve for sales returns and other allowances    $ 194,099     $   390,880     $   340,046     $ 244,933
                                                   ==========================================================

2000
  Reserve for bad debts and allowances              $ 300,000     $     1,489     $    37,229     $ 264,260
                                                   ==========================================================
  Reserve for sales returns and other allowances    $ 120,833     $ 1,766,397     $ 1,693,131     $ 194,099
                                                   ==========================================================

1999
  Reserve for bad debts and allowances              $ 279,508     $    29,920     $     9,428     $ 300,000
                                                   ==========================================================
  Reserve for sales returns and other allowances    $ 129,833     $   100,000     $   109,000     $ 120,833
                                                   ==========================================================
</TABLE>

                                                                            F-20

<PAGE>

                                   SIGNATURES

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

                                        STRATASYS, INC.

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

Dated: March  25, 2002

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

<TABLE>
<S>/s/ S. Scott Crump                      <C>                                     <C>
---------------------------------          Chairman of the Board of Directors,     March 25, 2002
       S. Scott Crump                       President, Chief Executive Officer,
                                            Treasurer, (Principal Executive
                                            Officer)
   /s/ Thomas W. Stenoien
---------------------------------          Chief Financial Officer (Principal      March 25, 2002
       Thomas W. Stenoien                   Financial and Accounting Officer)

   /s/ Ralph E. Crump
---------------------------------          Director                                March 25, 2002
       Ralph E. Crump

   /s/ Clifford H. Schwieter
---------------------------------          Director                                March 25, 2002
       Clifford H. Schwieter

   /s/ Arnold J. Wasserman
---------------------------------          Director                                March 25, 2002
       Arnold J. Wasserman

   /s/ Gregory L. Wilson
---------------------------------          Director                                March 25, 2002
       Gregory L. Wilson

   /s/ Cameron Truesdell
---------------------------------          Director                                March 25, 2002
       Cameron Truesdell

   /s/ Edward J. Fierko
---------------------------------          Director                                March 25, 2002
       Edward J. Fierko
</TABLE>