RAPID PROTOTYPING INDUSTRY ANALYSIS

RAPID PROTOTYPING INDUSTRY ANALYSIS By Team F Trevor Boehm Maria-Isabel Carnasciali M. Elizabeth Douglas Marco Gero Fernández Christopher Williams Presented to Professor Alan Flury December 1, 2004 1

Executive Summary The Rapid Prototyping (RP) industry is made up of a series of technologies comprising automated processes that can quickly fabricate any given three-dimensional object for the purpose of testing the form, fit, and function of a design. As a layer-based additive manufacturing method, RP gives a designer the power to build almost any conceivable geometry. RP processes, in general, begin with a three-dimensional computer model of the part to be made. This digital representation of the part is sliced into virtual layers by computer software. Each layer, representing a cross-section of the desired part, is sent to the RP machine where it is built upon the previous layer. This process, building the part layer-by-layer from the ground up, is repeated until the part is completed as shown in Figure A. 3D CAD Model Slice into crosssections Pass to Rapid Prototyping Machine Build one layer Part Complete? 3D Prototype Figure A: Additive Fabrication Process of Rapid Prototyping RP systems can produce models from 3D CAD data, CT and MRI scans, as well as 3D digitizing systems. Using an additive approach, RP systems join liquid, powder or sheet materials to form physical objects on a layer by layer basis. RP machines process plastic, paper, ceramic, metal and composite materials from thin, horizontal cross sections of computer models. This report provides a comprehensive overview of all major players RP as well as some of the mid-range contenders and emerging start-ups which may disrupt the industry. The RP industry is on the brink of a monumental change. Although rapid prototyping has become ingrained into the product development process around the world, it seems that evolution is more likely than reaching full maturity. The industry finds itself deluged in new processes, materials, and systems that will eventually lead to open up new markets, characterized by new customers and novel applications. The purpose of this report is to analyze the businesses that encompass the RP industry as well as to evaluate the industry as a whole. This examination is broken down into four sections: 1) History of the Rapid Prototyping Industry; 2) Industry Analysis; 3) Future of the Rapid Prototyping Industry; and 4) Recommendations. First, a history of RP market genesis to a current macro-scale view of the industry is provided to give context to the subsequent analysis. The second section breaks down the RP industry analysis by company. Nine companies are evaluated based upon their status in the market. 3D Systems and Stratasys represent the proverbial gorillas in the industry while the remaining seven companies embody start-ups and future contenders. In an industry where newer, cheaper technologies could lead to a paradigm shift, leaving the gorillas with diminishing market share, knowledge of these companies is critical to understanding the market as a whole. The future of the RP industry is split into three primary technology and application areas: (1) 3D printing for concept modeling, (2) mainstream rapid prototyping for fit and function applications, and (3) rapid manufacturing for production-quality parts. With an understanding of the RP companies and how their respective technologies suit the future needs of the market, industry recommendations are proposed to conclude this report. These are supported by a Porter s Five Forces Analysis (Appendix C), performed to determine the market sensitivities to possible changes in the industry, which could aid RP companies in developing strategies to remain not only viable as future contenders, but also to become/remain market leaders in an ever changing global economy. 2

Table of Contents Section 1: History of the Rapid Prototyping Industry... 1 Section 2: Industry Analysis... 3 2.1 3D Systems... 3 2.2 Stratasys... 5 2.3 Z Corp... 7 2.4 Solidscape... 8 2.5 Sony... 9 2.6 EOS GmbH... 10 2.7 Arcam... 10 2.8 Objet Geometries, Ltd... 11 2.9 Optomec... 12 Section 3: Future of the Rapid Prototyping Industry... 13 3.1 3D Printing for Concept Modeling... 13 3.2 Rapid Prototyping for Fit and Function Applications... 13 3.3 Rapid Manufacturing for Production-Quality Parts... 14 Section 4: Recommendations... 15 References... 16 APPENDIX A: Exhibits... 17 APPENDIX B: Financial Statements... 25 APPENDIX C: Porter s Five Forces Analysis... 35 3

Section 1: History of the Rapid Prototyping Industry Rapid Prototyping (RP) is a type of Computer Aided Manufacturing (CAM) and refers to the automatic construction of mechanical models via additive fabrication (e.g., 3D printers, stereolithography, selective laser sintering, etc.), as opposed to more traditional subtractive means (e.g., CNC). The RP industry emerged in 1987 when 3D Systems sold the first commercially available Stereolithography Apparatus (SLA). In the following years, other RP companies emerged slowly at an approximate rate of one per year. In Japan, NTT Data CMET commercialized its own version of stereolithography in 1988, and Sony/D-MEC joined the RP market in 1989. Not until 1990 did Electro Optical Systems (EOS) of Germany sell its first stereolithography system. In 1991, RP systems were commercialized by three companies: Stratasys, Cubital, and Helisys. The Fused Deposition Modeling (FDM) technology by Stratasys was unique in that it extruded thermoplastic materials in filament form to produce parts layer by layer as opposed to solidifying layers using a laser. At the time most successful and popular systems used liquid photopolymer resin and cured it via the stereolithography process, but, in 1992, DTM introduced the Selective Laser Sintering (SLS) process which relied on the heat from a laser in order to fuse powders. In 1993, Soligen commercialized Direct Shell Production Casting (DSPC), which employs an ink jet mechanism to deposit liquid binder onto a ceramic powder to form shells for use in the investment casting processes. From 1994 on, there have been many RP system introductions. Kira Corp. commercialized Japan s first non-stereolithography system in 1994. By comparison, 3D Systems did not sell its 1 st non-stereolithography system until 1996. Small companies have come and gone, many others are still in the process of developing their technology. Stereolithography still accounts for a large share of systems sales; however, certain applications and cost factors favor one or another of the other technologies. Of the approximately forty-five system/technology vendors worldwide, fourteen are using stereolithography technology in one form or another. Early machines sold for hundreds of thousands of dollars, and even though a careful cost accounting could show tangible savings with respect to expenditures on traditional prototypes and extensive design cycle costs that exceeded the initial purchase price of such systems many times over, widespread adoption was slow. Early adopters were thus, for the most part, very large companies who could afford such steep entry costs. As competition increased, companies began to develop faster and less expensive alternatives. Solidscape (1994) and Z Corporation (1997) offered products that were less expensive, easier to use, and smaller than first generation equipment. In 1998, 3D Systems introduced a cheaper version of their Actua 2100, called the ThermoJet, while Schroff Development began to sell its semi-automated paper lamination system for under $10,000. A diverse group of industries employ RP systems for a variety of purposes such as testing shape, fit, and function. Figure 1 shows the distribution of sectors being served, with the consumer products and automotive industries making up approximately 50% of the total. The most noticeable change is that academic institutions and the government/military, combined, grew by 5.7 % over the past 3 years, while consumer products decreased by 3.4 %. Also, many small to medium size businesses are becoming more involved as the average price of systems drops and the benefits of 3D printing become more widely understood. 1

Academic Institutions 8.1% Government/ military 4.5% Medical 10.7% Other 7.5% Consumer Products 25.6% Motor Vehicles 25.2% Aerospace 7.7% Business Machines 10.7% Government/ military 9.0% Academic Institutions 9.3% Medical 9.8% Other 8.9% Consumer Products 22.2% Motor Vehicles 26.1% Aeros pace 8.1% Business Machines 6.6% 2001 2004 Figure 1: Industries being served (Source: Wohlers Associates, Inc.) Though the RP industry originated in the US, much user and vendor activity now takes place in Europe and Asia. Figure 2 shows that only 43.5% of the RP machines worldwide are installed in North America through 2003, where as North America accounted for 52.6% of this total in 1997. The overall share held by North America is expected to slowly decline further as China and other countries update their product development industry. A breakdown of unit sales by country over the last 8 years is provided in Exhibit A. In the past three years, the UK and US markets had strongest growth, with 43.9% and 32.5% respectively, among the large markets. Australia and Taiwan, on the other hand, showed the largest growth amongst the countries with smaller RP installations. Ot her 1.9 % Asia/Pacific 30.2% Nort h A merica 43.5% Europe 24.4% Figure 2: Cumulative totals of location of machines installed (Source: Wohlers Associates, Inc.) The demand for RP is being driven by a need to decrease time to market, coupled with an increase in new product development. RP models have had a huge impact on the number of products being introduced into the market as well as the success of those products. Physical models of a product allow individuals and investors to grasp ideas and better gauge market 2

potential. RP reduces communication problems between the parties involved in product development, and thus provides the ability to manage, control, and detect changes and required modifications. 3D printers are enabling companies to create quick and inexpensive models early in the design cycle, thus allowing for the testing of multiple concepts and avoiding drastic and expensive changes later in the design process. Advances in technology as well as materials have thus opened the door to functional testing of a concept designs using RP models. Industry is also beginning to use RP systems to directly produce parts which are functional end-use items on a low volume or customized basis. Besides cutting down time to market and product expense, this rapid manufacturing using RP provides an affordable way to uniquely manufacture a product for the individual costumer. The RP industry has had a number of ups and downs in the past couple of years. The US continues to be dominant on both the production and consumption of RP systems. Currently, only two of the US RP companies are public, namely 3D Systems and Stratasys. The economic slowdown of the last several years, coupled with a trend toward lower-cost systems resulted in a contraction of both revenue and unit sales for the RP industry compared to the levels of the mid- 1990s (see Exhibits B and C). 2003 showed a reversal in the downward trend. Sales of low-end machines soared, with 3D printers leading the way. 3D Systems remains today's RP market revenue leader; however, Stratasys is inching its way towards dominance. In 2003 Stratasys unseated 3D Systems as the cumulative installed base leader and has continued to be the leader in the number of units sold. During 2003, Z Corp. moved into second place. As the technologies change, the market leaders may change. A closer look into the gorillas, contenders, and start-ups is needed to fully understand the RP industry. Section 2: Industry Analysis 2.1 3D Systems For many years, 3D Systems was a technology leader in the RP field. The first ever commercially available RP machine was introduced by 3D Systems in 1987. Its entry, the SLA- 1 (StereoLithography Apparatus), had no competition until a year later. Once again, in 1996, 3D Systems was first to market with a new technology, the 3D printer. By 1999, 3D Systems replaced its original printer with a product still sold today, the ThermoJet, which is a faster, less expensive printer than its original Actua 2100. While coming to market with this new technology, 3D Systems continued to work in stereolithography technology, introducing one of its current products, the SLA 7000 in 1999 the most expensive RP machine on the market at a price of $800,000. 3

As of December 31, 2003, 3D Systems held 367 U.S. and foreign patents with 144 more pending. Despite this, over the past three years 3D Systems has been losing ground in the RP market, operating in survival mode. During those years, revenues and net income have plummeted, as seen in Figure 2.1.1. Financial reports are available in Appendix B. This is attributed to several factors including pending lawsuits. Fierce litigation between 3D Systems and EOS GmbH drained resources that could have been used in product development. In its 2003 Annual Report, 3D Systems listed another two cases: Hitachi Zosen v. 3D Systems, Inc. and 3D Systems, Inc. v. Aaroflex, et al. 2004 may be a major turning point year for 3D Systems. A new president/ceo was appointed in late 2003, refocusing the company on production of new products and changing the corporate strategy to offer low cost solutions to customers. Since mid-2003, two new RP products, both 3D printers, have been introduced: the InVision and a higher resolution, InVision HR. The current 3D Systems product line is listed in Exhibit D. Since 3D printing technology is the largest market sector, these new products could be a springboard for 3D Systems revival. In addition to the company s leadership/strategy change, the only disputes with EOS were settled in early 2004, and 3D Systems announced in October of 2004 the settlement of the Hitachi Zosen case and the dismissal of Aaroflex case. The 3D Systems current beta value is 1.268 (12/01/2004), which keeps it in line with high risk companies, such as airlines, but its diversified product line and settlement of all pending lawsuits keep this company s risk to a lower level than its main competitor, Stratasys Inc. Figure 2.1.1: Chart of 3D Systems revenue and net income from 2001 to 2003 An indicator of the positive changes is the steep ascent of the return on sales (ROS) between 2003 year s end and September 2004 quarterly report figures (Figure 2.1.2). Its current P/E ratio (12/01/2004) is 16.91, and, like its beta value, is more attractive than its main publicly-traded competition, Stratasys. Though third quarter 2004 and present day numbers are look promising for 3D Systems continued growth, only time will tell whether the company s change in strategy will pay off. 4

Figure 2.1.2: 3D Systems return on sales between 2001 and June 2004 2.2 Stratasys Stratasys was founded in Delaware in 1989 based upon the fused deposition modeling technology. Stratasys sold their first machine (3D Modeler) in April 1992. Since then the company has increased its product line to nine offerings. Stratasys issued an initial public offering in 1996. Since then Stratasys was second in overall unit sales in 1999 and 2000. The sales growth of Stratasys was also relatively stagnant between 1999 and 2000 with a growth rate of less than 2% (293 versus 297 units respectively). Since 2001 though, Stratasys sales have increased to the point where they surpassed 3D Systems to become number one in cumulative installed units in 2003 (3,013 units). Stratasys sales grew by 50% between 2003 and 2002. Six hundred and ninety-one (691) units were sold by Stratasys in 2003. Stratasys CEO claims that they are on track to sell 1,200 units in 2004. Stratasys sales growth can be attributed to their Dimension 3D printing machine. This machine is marketed to the strongest sector of the RP market, 3D printing. Sales of the Dimension machine alone increased by 65% between 2002 and 2003. Stratasys entire product line is shown in Exhibit E. Stratasys greatly improved its financial numbers in the past year. Thanks to their great product offerings in the 3D printing sector, revenue and net income rose 29% and 98% respectively between 2002 and 2003. Stratasys revenue and net income are shown in Figure 2.2.1. 5

Figure 2.2.1: Chart of Stratasys revenue and net income from 2001 to 2003 Not only have revenue and net income grown, but Stratasys has found ways to increase their return on sales. Return on sales increases by 55% between 2002 and 2003. A chart of Stratasys return on sales over the past three and one-half years is shown in Figure 2.2.2. Financial reports are available in Appendix B. Figure 2.2.2: Stratasys return on sales between 2001 and June 2004 These financial results are proof that Stratasys strategy and product offerings are working. These financial returns will also give Stratasys more financial strength to prepare for the future. 6

Research and development was increased in 2003 by over 6% to $5 million. Stratasys claims that they spend more than any other company on research & development. As Stratasys is investing more to develop the future technological innovations of the industry, they are also improving their already great position for the future. The 3D printing sector of the RP market is believed by Stratasys to be the key to near-term growth. Since there are millions of 3D CAD Solid Modeling machines, it is believed that there is a market for approximately 500,000 3D printing machines. To increase sales growth of 3D printing machines, the company has created a stand-alone 3D printing group (Dimension Printing -www.dimensionprinting.com). This group will have its own sales, distribution, technical support and administrative work force. For long-term growth, Stratasys believes in focusing on the development of technologies and materials for the Rapid Manufacturing (RM) sector of the RP market. Currently, Stratasys offers machines that use Fused-Deposition Modeling to perform RM. Stratasys is currently working on improving the speed, resolution, and working envelope of their FDM machines. Since the RM sub sector is in the early stages of development, it is too early to limit their offerings to one technology. Stratasys entered into an exclusive distribution agreement with Objet Geometries of Israel. Objet offers the Eden333 which uses Polyjet technology. Stratasys Inc. still has some ground to make up before fully surpassing the other gorilla in RP, 3D Systems. The 12/01/2004 beta and forward P/E ratios are 1.706 and 28.17, respectively, making 3D Systems more attractive to potential investors; however, Stratasys is positioned well for the current market and is still looking ahead. Stratasys great market position will give it the financial means to invest in the future of the industry. This will give Stratasys a better opportunity to remain on top of the industry. 2.3 Z Corp Z Corporation manufactures and markets the world s fastest 3D Printers based on MIT's 3D printing technology since 1994. The system uses a wide inkjet head to bond a starch or plasterbased powder with a binder into the form of an object. The accuracy and finish of the parts is somewhat poorer than the competition, but improvements in materials and post finishing have amended the situation. The company has filed over a dozen patents protecting the specifics of its own equipment, materials, and software in the US, Europe, and Asia. In 2001, an inexpensive color option was introduced. At the beginning of 2002, the company introduced a system with a selling price in the $30,000 range, directly meeting Stratasys' challenge. Further price reductions to $26,000 have kept the companies in tight competition. Z Corp. was listed among the top 100 fastest-growing companies in the US for both 2002 and 2003, according to Inc. Magazine. According to the company s website, Z Corp. has been profitable four out of the last five years. Revenue grew 12.9% from $14.7 million in 2002 to $16.6 million in 2003. This is a decrease compared to the growth of 28% experienced in 2002. Through its direct sales force and distributors, the company sells its products globally into a wide range of industries, including consumer products, defense and weapons systems, architecture, automotive and education. 7

According to a June 30, 2004 news release from the company, their unit sales went from 210 in 2002 to 349 in 2003, representing a growth rate of 66.2%. This put them ahead of 3D Systems, but behind Stratasys, on annual unit sales. Z Corp. has sold more machines than 10 other RP system manufactures that have had machines on the market longer than Z Corp.; cumulative machine sales surpassed 1,078 by the end of 2003. Based on its patents and proprietary know-how, Z Corp. has three advantages (speed, cost, and color) over its competitors that put the company in a strong position to penetrate the large market for CAD 3D output. The company s success demonstrates that its management and technical team have a clear vision and can effectively execute. According to the Wohlers Associates, Inc., Z Corp. has attended at least one prominent investor conference recently and may be setting the stage for an IPO within the next 1-2 years. 2.4 Solidscape Privately held Solidscape, founded in 1994, produces inkjet-based machines. The Solidscape system is able to build small parts with excellent surface finish at a relatively slow rate. The company s proprietary, patented systems produce tooling grade master patterns for rubber tool making and direct investment casting. It uses a milling head to trim each layer, allowing greater accuracy and the ability to correct mistakes resulting from a failure of the inkjet. The company has found a successful niche in jewelry manufacturing and other markets where small, intricate parts are the norm. In July 2003, the company began selling its T612 system, which is smaller and 25% faster than its predecessor. However, it is $27,000 more expensive. Also in July of 2003, Solidscape and GeoDigm Corp. signed an agreement for the dental and orthodontic market. GeoDigm has ordered a total of 54 machines which will have a huge impact in the financial future of Solidscape. The past few years have been plagued with legal cases. In October 2000, the company switched names from Sanders Prototype in order to avoid confusion with Sanders Design International (SDI). Solidscape sued SDI, its founder Royden Sanders and its President Albin Hastbacka. In March 2003, the court granted a preliminary injunction against SDI. It ordered that SDI, and all those affiliated with it, be restrained from marketing or selling the Sanders 20/20 system. Since this system directly competes with Solidscapes, this ruling proves to give Solidscape a strong market advantage. Currently, Solidscape is seeking a permanent injunction against SDI for patent infringement, as well as compensatory damages, treble damages, and attorney s fees. In 2000, Solidscape fell to number 4 th in annual unit sales and has remained there since. The next few years will be critical to its market position but depend primarily on the outcome of the court case as well as the success of their new international headquarters in the Netherlands. The company, however, must find a means to decrease prices if they want to maintain the control of their current niche market. 8

2.5 Sony Sony Manufacturing Systems America (SMSA), operating within the Sony Precision Technology America (SPTA) division, is responsible for selling and servicing the stereolithography systems in the U.S. market, manufactured by Sony Manufacturing Systems in Japan. Both SMSA in particular and SPTA in general have additional sources of revenue, emanating from the sale of metrology equipment, ranging in price from $1,500 to $350,000, and CD/DVD mastering and replication equipment, priced in the multi-million dollar range, respectively. The SMSA group was charged with the sale of the Sony s SLA equipment (i.e., the Solid Creation System) in the highly competitive U.S. market largely because of its vast experience in the support of capital goods and marketing. However, due to an overall lack of familiarity with the RP industry and market, it took a considerable amount of time to develop a U.S. service organization and sales force, as well as attain sufficient market knowledge. Having taken charge of its first machine in April of 2003 and entering the market in June of that year, it took SMSA until February 2004 to make its first sale, a SCS-9000D at a price of $799,000. By the end of April no additional sales had been made. For an overview of Sony s complete RP product line, please refer to Exhibit F. SMSA s first SCS sale was to Prototypes Plus, a Menlo Park (CA) based RP service bureau. According to George Dukes, the company president, the SCS-9000D s large build envelope (39.5 x 31.5 x 20 ), was one of the primary reasons for the purchase. This constitutes an increase in potential part size of approximately 260 %, when compared to 3D Systems s SLA- 7000 machine (20 x 20 x 24 ), sold for the same price. Additional reasons for switching to the Sony system include the double laser beam feature and its positive effect on overall build times. It is Prototypes Plus s intention to rely on the larger build envelope in order to better service the needs of clients such as Lockheed Martin, Loral Space Systems, Stanford University, Cisco, and Sun Microsystems. A February 2004 announcement by DSM Somos regarding the qualification of its resins for use with the Sony SLA systems is likely to have a positive effect on future SCS sales in the U.S. market. Currently, Sony s SCS base in Japan consists of approximately 220 machines installed with an average of 25 machines per annum being sold over the past 7 years, as indicated in Exhibit G. Sony s recent entry into the U.S. market is due to a licensing agreement with the US powerhouse 3D Systems, mandated by the Justice Department as part of an agreement following 3D System s purchase of DTM Corporation. Having a strong presence of 17% in the Japanese market (where no single company has dominated unit sales in last four years) combined with an impeccable track record of success and persistence, Sony Corporation is likely to pose a formidable threat to 3D System s domination of the worldwide stereolithography market in the years to come. Considering that the US market makes up 80% of the world market as compared to the 11.3% of the Japanese market, however, it will take time for Sony to establish its brand and leverage its reputation to yet another venture. 9

2.6 EOS GmbH This German manufacturer produces the EOSINT series that pertains to a family of Direct Metal Laser Sintering machines, akin to 3D Systems/DTM s SLS technology. Unlike 3D Systems SLS technology, however, it is not possible to process both thermoplastics and metals in a single EOSINT machine. Instead, EOS furnishes machines specifically designed to suit the processing needs of the material in question. For example, the EOSINT P processes thermoplastic powders, the EOSINT S foundry sand, etc. On the whole, EOS s machines allow for building parts in wide variety of different materials polystyrene, polyamide, glass-filled polyamide, foundry sand, metal, and thermoplastics. See Exhibit H for EOS s full line of products. New additions to the product line include the EOSINT M 270 for processing metal, offering improved resolution (via reliance on a new generation variable focus fiber laser) and a 30% increase in speed. On the material side, EOS recently introduced Alumide, an aluminum-filled material composed of nylon and aluminum powder, to be processed using the company s plastic laser-sintering machines. Additionally, DirectSteel H20 was introduced as a non-porous lasersintering alternative, mustering an impressive hardness of 42 on the Rockwell C scale. Winning the longstanding patent and contract battle against 3D Systems in the U.S. brought forth an end to worldwide litigation (i.e., lawsuits had been filed in France, Germany, Italy, Japan, and the U.S.) that started in part as a result of 3D Systems aggressive entrance into the sintering market after its acquisition of DTM Corporation. The agreement, final reached this year, has the potential to prove beneficial for both companies. EOS will pay 3D Systems royalties for the sale of certain laser sintering machines in the U.S., while 3D Systems will purchase and sell certain laser-sintering products directly from EOS. EOS is currently valued at $73 Million, with revenues rising to an estimated $48 million in 2003, up almost 15% from the previous year. This impressive increase in profits occurred despite EOSINT unit sales that have remained mostly flat over the past four years (51 in 2000, 52 in 2001, 57 in 2002, and finally 55 in 2003), as indicated in Exhibit I. Since its inception in 1990, a total of 476 machines have been sold. Increased reliance on EOS products is likely to continue due in large to adaptation in the direct manufacture of hearing aids, sunglasses, centrifuges, and computer locks. More recent applications of the EOSINT M series of machine center on manufacturing production line quality parts such as plastic handles and golf putters. On the whole, EOS exhibits a strong customer base, consisting of such industrial giants as BMW (who purchased the first EOSINT system ever made), Daimler-Benz, and Fiat and is certain to continue giving 3D Systems the proverbial run for the money. 2.7 Arcam Arcam is a Swedish rapid prototyping company with the focus of using additive manufacturing to create metal components. Similar to 3D Systems Selective Laser Sintering, Arcam s technology is centered on creating metal parts via the selective melting of metal powders. Unlike the laser used by 3D Systems' Selective Laser Sintering (SLS), Arcam s proprietary technology uses an electron beam to selectively sinter the powders to create the metal part. According to the company, the use of an electron gun results in much higher energy efficiency (resulting in cheaper production) and a cleaner environment, which leads to better material 10

properties than competing methods. Although the company has only successfully created parts with two different materials (H13 tool steel and titanium), they believe that the use of the electron gun technology will allow them to produce parts with materials that their competitors cannot offer. The ability to additively manufacture metal parts provides a designer the opportunity to utilize the technology throughout the entire spectrum of the product design timeline from making prototypes, to making tooling for the creation of products, to the direct manufacture of actual parts. As such, Arcam s technology has entered many different markets. From their press releases, one can observe purchases of their machines by companies in markets involving tooling, medical devices, aerospace (Boeing), automotive (Volvo), rapid prototyping service bureaus (Furth Innovative Technolgien), and universities (NC State, Warwick University). Last year, the company sold four of its machines to organizations in Europe and the U.S. Arcam sold one system in 2002 and two systems in 2001. Each machine, named the EBM S12, retails for $479,000. Although the commercialization of the company s technology is relatively young, it is publicly traded on the Nordic Growth Market. As a publicly traded company, we were able to retrieve some financial reports for this project. These reports were all in Swedish, however, so no financial information was able to be retrieved. 2.8 Objet Geometries, Ltd. An Israeli company founded in May 1998, Objet is a privately owned company that holds 30 granted and pending patents. Objet offers its own unique take on rapid prototyping - what is essentially a combination of 3D Systems Stereolithography and inkjet deposition technologies; Objet s technology is centered on the layer-based deposition of a photopolymer resin via ink-jet printing. A UV flood lamp is used to solidify each layer after it is deposited. The company s value proposition comes about from the fact that their technology is based upon, and achieves similar results to, existing technology; but it is a quarter of the price of their competitors. Furthermore, this proprietary technology is capable of depositing extremely thin layers (0.0006 in.), thus making it capable of producing higher quality parts than their competitors. As a result, Object offers one of the most accurate machines in the RP market. The company s product line is provided in Exhibit J. Last year, the company s third year of sales, was strong as it sold 94 machines, a 104% improvement from the year before. Through the end of 2003, the company had sold 161 machines worldwide. Currently, Objet trails Stratasys, Z Corp., and 3D Systems in total 3D printer sales. There has been a significant amount of industry noise coming from the Objet management in the past years. The company purchased the early Israeli RP market entrant Cubital s patent portfolio in 2001 as a defensive measure. In late 2003, Objet partnered with Stratasys to market its systems in the United States. Objet had little previous success in the United States due to limited sales resources in the region; the partnership with Stratasys provides a highly developed distribution channel consisting of more than 50 sales and support personnel. In return, Stratasys position in the United States RP market is strengthened. This move was countered, however, by 11

3D Systems as they commercially introduced a similar technology (a photopolymer-based inkjet system) in late 2003. Finally, in August 2003 Objet hired a new CEO with over 20 years of experience in sales, marketing, new business development, and management at U.S. and Israeli companies. Private investors from the US and Europe joined the founders of Objet to provide initial funding for the company. In June 2000, the private investors were joined by Scitex Corporation, a leader in industrial inkjet printing, and TDA Capital Partners, a venture capital fund headquartered in the US. From the agreement, Scitex holds approximately 19% of the issued shares in Objet, and has been granted additional warrants to invest further. 2.9 Optomec Optomec is a 20-year old privately held company based in New Mexico. It offers another type of prototyping technology capable of making metal parts. This technology, named Laser Engineering Net Shaping (LENS), is a commercialized version of a similar technology developed by the Sandia National Laboratory. The LENS process involves the injection of metal powders into a pool of molten metal that is created by a high-powered laser the process is akin to three-dimensional selective welding. The process is capable of making various types of stainless steels, nickel-based superalloys, tool steels, and titanium alloys. Through the end of 2003, the company had sold a total of 18 LENS machines in six years of selling systems. Optomec s product line is given in Exhibit K. In November 2002, Optomec began a $2 million project with the Department of Commerce s National Institute of Standards and Technology (NIST) to improve the LENS technology. In April 2003, the company received approval from the Pentagon for a program with Rolls Royce, Boeing, Siemens Westinghouse, Collins & Aikman, and three military branches. NASA and five Department of Defense repair and overhaul depots representing the Army, Navy, and Air Force are also involved. The combined value of the work is about $5 million, including $1.3 million for the purchase of a LENS 850-R and related application development from Optomec. A new technology, Mesoscale Material Deposition (M3D), has received a lot of attention from Optomec due to a $9 million contract with DARPA. Since its inception, Optomec has sold three of these systems ranging in price between $325,000 to $555,000. Despite its privately held status, Optomec provided some financial information in Q1 of 2002. Specifically, Optomec reported a net income of $90K on revenues of $1.4 million for Q1 of 2002. This represented more than 50% growth over Q1 2001. Optomec has been listed as Industry Week s Top 25 Technologies of the Year and was included in Inc. 500 s list of fastest growing private companies. 12

Section 3: Future of the Rapid Prototyping Industry With more than 15 years of growth and development, the Rapid Prototyping market has split into three primary technology and application areas: (1) 3D printing for concept modeling, (2) mainstream rapid prototyping for fit and function applications, and (3) rapid manufacturing for production-quality parts, discussed in Sections 3.1, 3.2, and 3.3 respectively. As a result, the industry is beginning to see more specialized development in systems and materials. Until recently, nearly all systems provided general-purpose solutions aimed at meeting a wide range of needs; however, new products are increasingly targeted toward specific application types. 3.1 3D Printing for Concept Modeling The number of 3D printers sold throughout the world has dramatically increased over the past few years as indicated in Exhibit B. 3D printers now represent 30.7% of all RP systems installed worldwide, up from 25.8% the year before. Wohlers Associates estimates that 3D Systems, Stratasys, Z Corp., Objet Geometries, and Envisiontec sold an estimated $37.4 million worth of 3D printers last year alone, making 2003 the first year that over 1,000 such machines were sold. The estimate represents an unprecedented increase of 57.3% over the previous year, dwarfing the 34.2% growth charted in 2002. Last year s growth in the sale of 3D printers is even more impressive, when considering that sales of other RP systems (non-3d printers) grew by only 2.6%, making this segment the fastest growing sub-market. With regard to annual unit sales, 3D printers have become absolutely critical to the success of a RP company. Stratasys sold an estimated 497 of its Dimension 3D printer last year alone, while 3D Systems were not nearly as successful in growing its ThermoJet sales (i.e., ThermoJet printers accounted for a substantial percentage of units sold by 3D Systems in 1999-2001, but not in 2002 and 2003). This may explain why Stratasys is likely to become the number one RP machine vendor in the years to come. Demand for these types of machines is likely to continue to increase as companies realize the value of concept models during the early phases of product development. It is expected that the growth of this market will continue at a similar pace for the next 3 years, before slowing as later adopters jump on board. The continued success of this RP market niche, however, depends upon the ability of manufacturers to reduce the price of the underlying technology sufficiently to make it a commodity. If successful, it is quite feasible that 3D Printers may find their way into homes around the world within the next decade. 3.2 Rapid Prototyping for Fit and Function Applications This segment of the RP market includes systems that (1) can make prototype parts with limited functionality or (2) prototype parts that can be used as patterns for secondary processes such as injection molding to make functional prototypes. As the original and long-time core application of the industry that still bears its name, Rapid Prototyping has reached maturity. No new disruptive technologies are foreseeable with regard to processes. The major limitations, stunting further growth of this market segment, are machine price and (limited) material selection. A substantial investment in R&D is not likely to result in significant technological changes; the 13

missing constituent is a material that has properties virtually matching those of injection molded plastic. Creating this material seems to be the last and most difficult challenge. More importantly, the decision to purchase a RP machine for plastics requires a high level of commitment: the machines are expensive, require a skilled operator, are difficult to maintain, and cannot operate in an office environment. The market of users is thus saturated and likely to grow only as a result of dramatic decreases in cost and subsequent expansion into smaller businesses. An upside of the inherent level of commitment stems from the continued maintenance and service contracts accompanying the initial purchases. The decline of 3D Systems constitutes a major signal of the decline of this market segment. While 3D Systems continues to be the single largest revenue producer in the RP market, its overall market share is falling. Specifically, the company held 20.8% of the $528.9 million market in 2003, compared to 23.8% in 2002. 3D Systems was also the unit sales leader in 2001 by a significant margin with 415 machines sold. The company has since experienced a shocking decline and been surpassed by Stratasys as the company with the largest installed base of RP machines. Stratasys now has 3,013 machines in place, compared with an estimated 2,898 3D Systems machines. Without a major breakthrough in the realm of RP materials that can be processed (i.e. plastics or metals) using the technologies making up this market segment, continued shrinkage both in volume of machines sold and revenue is likely. 3.3 Rapid Manufacturing for Production-Quality Parts Very recently, companies have begun to look at moving beyond rapid prototyping to rapid manufacturing. Additive-fabrication techniques offer many production benefits over traditional manufacturing techniques, such as the capability to create multiple, different geometries within a single production batch without the need for a change in tooling. As such, many manufacturers are looking to using RP technologies in the production (1) low volume, (2) replacement, and (3) made-to-order, customized parts. As of today, some examples of rapid manufacturing include: personalized clear braces and hearing aids, as well as ductwork for aerospace applications. Additionally, many researchers have successfully processed medical implants. This promises to be a large area of industrial application within the next decade. The advent of the ability to process new materials (especially metals) will greatly accelerate the growth of this market segment. Growth of this market segment will continue, though quite slowly. It will take time for researchers to develop new materials as well as machines which can economically compete with traditional means of manufacturing. 14

Section 4: Recommendations The RP industry is on the brink of a monumental change. A Porter s Five Forces Analysis (Appendix C) outlines the dynamics within this industry, and its sensitivity to various changes.. Rapid prototyping has become ingrained into the product development process around the world. Rather than reaching full maturity, it seems that evolution is more likely. The industry finds itself at the brink of a surge in new processes, materials, and systems that will lead to open up new markets with regard to new customers and novel applications. As a whole, the industry shows significant promise. This past year, the industry rebounded after two years of decline. In 2003, the worldwide market for rapid prototyping, consisting of products and services, grew 9.2% to $528.9 million. This stands in marked contrast to the 10% decline in industry revenues to $485.5 million in 2002 and a decline of 10.5% in 2001, as illustrated in Exhibit C. Annual revenues from product sales were especially strong in 2003. This segment of the market grew by 15.2% to $271.8 million. Worldwide sales of RP machines grew as well to 1,864 machines in 2003 (see Exhibit L). This constitutes an increase of 27.1% from the 1,467 units sold in 2002 and compares favorably to a growth of 12.8% in 2002. It is important to note that sales of 3D printers are credited for most of last year s growth. The growth trend of RP unit sales worldwide is shown in Exhibit L. As indicated, Wohlers Associates forecasts annual unit sales to increase by 22% in 2004 and 21% to 2,755 units in 2005. Overall, the first 15 years of the RP industry have been strong compared to the growth of the now well established CNC and machine tool markets (which also started out as RP applications and have since progressed towards low volume, specialized manufacture) in their early years. RP revenues have grown by an average annual rate of 32% from 1988 to 2003. From 1970 to 1981, the CNC market by comparison grew at an annual rate of only 22%. It is our opinion that the rapid prototyping portion of the market segment will continue to decline. This change will occur due to the wide-acceptance of the 3D printer technology, which constitutes the most scalable technology. 3D Printing offers an engineer the ability to produce prototypes at costs much lower than any other currently available RP technology. It is likely that within the next decade or two, many homes around the world will have 3D printers next to their PCs. The Rapid Manufacturing segment, while showing a lot of promise, is much farther on the horizon with respect to both widespread acceptance and growth. This is due in part to much required (and significant) improvements in deposition technology, materials, and part resolution also being a few years away. After this is completed, companies will need to determine how, and when, these new machines should be incorporated into the overall value chain of engineering enterprise. This recommendation is supported by Exhibit M. 15

References [1] http://finance.yahoo.com [2] http://www.3dsystems.com [3] http://biz.yahoo.com/bw/041013/135350_1.html [4] Wohlers Report 2004 Rapid Prototyping, Tooling & Manufacturing State of the Industry Annual Worldwide Progress Report [5] http://www.zcorp.com/company/overview.asp [6] http://www2.rhino3d.com/ [7] http://home.att.net/~castleisland/ind_c.htm [8] http://www.solid-scape.com/releases.html [9] http://www2.rhino3d.com [10] http://home.att.net/~castleisland/ind_c.htm [11] http://www.manufacturingtalk.com/news/dsm/dsm116.html [12] http://www.sonypt.com [13] http://www10.dccafe.com/nbc/articles [14] http://www.newslettersonline.com [15] http://www.prototypesplus.com [16] http://www.wtec.org/loyala/rp/p1_eos.htm [17] http://www.hoovers.com/eos/ [18] http://biz.yahoo.com/ic/101/101265.html [19] http://www.de.finance.yahoo.com [20] http://www.mcadcafe.com/magazine [21] http://www.arcam.com [22] http://www.home.att.net/edgrenda [23] http://home.att.net/castleisland [24] http://www.2objet.com [25] http://www.scitex.com [26] http://www.optomec.com [27] http://www.ngm.se 16

APPENDIX A: Exhibits Exhibit A Country Accum total Sold in 2003 Sold in 2002 Sold in 2001 Sold in 2000 Sold in 1999 Sold in 1998 Sold in 1997 U.S. 4758 803 606 466 492 487 431 451 1022 Canada 104 19 10 7 12 7 17 19 13 Austria 28 3 4 6 2 6 3 1 3 Belgium 18 5 1 1 3 2 0 1 5 Bosnia 1 0 0 1 0 0 0 0 0 Czech Rep 19 4 2 5 1 3 1 3 0 Denmark 28 5 1 7 5 3 2 2 3 Finland 32 4 1 2 3 7 4 5 6 France 311 40 37 50 44 42 22 21 55 Germany 984 135 120 134 117 112 103 24 169 Greece 26 4 4 7 1 0 1 4 5 Hungary 4 0 3 0 0 0 1 0 0 Iceland 2 2 0 0 0 0 0 0 0 Ireland 2 0 0 0 0 0 0 0 2 Italy 379 59 48 60 52 35 39 38 48 Luxembourg 2 0 0 0 1 0 0 0 1 Neatherlands 41 0 5 11 2 12 4 4 3 Norway 11 1 2 2 1 1 1 2 1 Poland 10 2 2 0 2 0 2 2 0 Portugal 15 4 0 3 1 4 2 1 0 Romania 3 0 0 1 0 0 0 0 2 Russia 57 9 10 8 6 5 0 7 12 Slovenia 7 0 3 1 2 0 0 1 0 Spain 91 14 7 17 23 11 11 5 3 Sweden 115 12 12 8 12 12 15 6 28 Switzerland 47 9 13 7 4 2 4 3 5 Ukraine 2 0 1 0 1 0 0 0 0 United Kingdom 479 82 57 62 65 64 35 56 58 Other European 10 1 0 0 1 0 0 0 8 Cyprus 4 0 2 0 0 0 2 0 0 Egypt 5 0 4 0 1 0 0 0 0 Israel 22 5 4 7 2 3 0 1 0 Iran 3 1 1 0 0 0 0 0 1 Saudi Arabia 3 1 0 0 2 0 0 0 0 Turkey 72 25 16 1 10 9 3 5 3 United Arab Emirates 3 0 0 0 0 1 2 0 0 South Africa 14 2 2 2 1 1 0 2 4 Australia 64 19 7 7 6 0 3 7 15 China 716 183 160 83 120 64 31 42 33 India 92 21 7 20 10 5 7 13 9 Indonesia 4 1 2 0 0 0 0 0 1 Japan 1917 235 216 219 251 238 208 187 363 Korea 242 54 46 29 29 30 9 13 32 Malaysia 62 14 12 14 6 4 1 9 2 New Zealand 3 0 1 1 0 1 0 0 0 Singapore 55 7 3 4 4 6 5 8 18 Taiwan 158 50 22 26 13 9 6 13 19 Thailand 47 11 12 6 4 2 2 5 5 Vietnam 7 4 2 1 0 0 0 0 0 Argentina 4 0 0 1 0 2 0 1 0 Brazil 45 7 7 9 3 3 5 6 5 Chile 2 0 1 0 0 0 0 1 0 Colombia 8 5 3 2 0 0 0 0 1 Uruguay 2 0 0 0 0 1 0 0 1 Other S. America 2 0 0 0 0 0 0 0 2 Costa Rica 1 0 1 0 0 0 0 0 0 Mexico 17 5 1 0 5 0 1 1 2 Thru 1996 17

Other Nations 6 0 2 1 0 1 0 0 5 Total 11166 1864 1482 1299 1320 1195 983 1050 1973 Source: Wohlers Associates, Inc. Exhibit B 1200 1000 1032 800 656 600 512 489 400 335 200 198 105 160 0 1996 1997 1998 1999 2000 2001 2002 2003 Growth of 3D printer sales from 1996 to 2003 (Wohlers Report, 2004) 3D Printer Sales since 1996 Company 1996 1997 1998 1999 2000 2001 2002 2003 Total Stratasys 90 40 60 75 115 95 305 497 1277 Z Corp. 1 7 48 105 170 188 210 349 1078 3D Systems 14 113 90 155 227 182 88 53 922 Objet - - - - - 24 51 94 169 Envisiontec - - - - - - 2 39 41 Total 105 160 198 335 512 489 656 1032 3487 (Wohlers Report, 2004) 18

Exhibit C Total market revenue for the RP Industry 700 600 Total Market Revenue (millions of dollars) 500 400 300 200 100 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 (Wohlers Report, 2004) 19

Exhibit D 3D Systems Product Line Machine Name Technology Build Envelope Max Scan Speed InVision 3D Printer InVision HR 3D Printer Thermojet Printer Viper SLA System Viper HA SLA System SLA 7000 System SLA 5000 System Sinterstation HiQ Exhibit E Multi-Jet Modeling 11.75x7.3x8 in not available Multi-Jet Modeling 3x3x2 in not available Multi-Jet Modeling 10x7.5x8 in not available Stereolithography Stereolithography Stereolithography 10x10x10 in 5x5x10 in (HR) 4.7x9.64x2 in (dual) 10x10x2 in (single standard) 5x5x2 in (single HR) 20x20x23 in 5 mm/sec 5 mm/sec 2.54 m/sec (small) 9.53 m/sec (large) Stereolithography 20x20x23 in 5 m/sec Selective Laser Sintering 14x12x17 in 5 10 m/sec Stratasys Product Line Machine Name Build Envelope Materials Prodigy Plus 8x8x12 in ABS plastic Eden 333 13.4x13x7.9 in Proprietary UV plastic FDM Vantage i 14x10x10 in ABS or Polycarbonate FDM Vantage S 14x10x10 in ABS and Polycarbonate FDM Vantage SE 16x14x16 in ABS and Polycarbonate FDM Titan 16x14x16 in ABS, Polycarbonate and Polyphenylsulfone FDM Maxum 23.6x19.7x23.6 in ABS and ABSi plastic Dimension BST 8x8x12 in ABS Dimension SST 8x8x12 in ABS 20

Exhibit F Sony Product Line Machine Name Build Envelope Max Scan Speed Special Feature Price SCS-6000 11.8x11.8x10.6 in. 0.5-2mm/sec High Accuracy $259,000 SCS-8000 23.6x19.6x19.6 in. 3-10mm/sec High Speed $599,000 SCS-8000D 23.6x19.6x19.6 in. 3-10mm/sec High Speed Dual Beam $749,000 SCS-9000D 39.3x31.4x19.6 in. 3-20mm/sec Large Build Envelope, Dual Beam $799,000 Exhibit G Sony Machine Sales 40 35 30 25 Machines Sold 20 15 10 5 0 1988 1990 1992 1994 1996 1998 2000 2002 2004 Year 21

Exhibit H EOS GmbH Product Line Machine Name Build Envelope Material Price EOSINT P 380 13x13x24 in. Polystyrene, polyamide, glass-filled and $416,000- aluminum-filled polyamide powders $447,000 EOSINT P 700 28x15x23 in. Polystyrene, polyamide, glass-filled and $939,000- aluminum-filled polyamide powders $1,038,000 EOSINT M 250 10x10x6 in. Proprietary metal powders $441,000 EOSINT M 270 10x10x8.5 in. Proprietary bronze- and steel-based powders $441,000 EOSINT S 750 28x15x15 in. Resin-coated sand $380,000- $400,000 Exhibit I EOS GmbH Machine Sales 60 50 40 Machines Sold 30 20 10 0 1988 1990 1992 1994 1996 1998 2000 2002 2004 Year 22

Exhibit J Objet Geometries Ltd Product Line Product Region Cost Eden 330/333 United States $89,000 / $115,000 Eden 260 Europe $94,000 Eden Japan $183,000 (Wohlers Report, 2004) Exhibit K Optomec Product Line Machine Name Purchase Cost Annual Maintenance Cost LENS 750 $ 440,000 640,000 $25,000 50,000 LENS 850 $ 530,000 770,000 $25,000 50,000 LENS 850-R $ 830,000 1,400,000 $35,000 75,000 M3D System $ 325,000 550,000 $25,000 Exhibit L (Wohlers Report, 2004) 3000 2755 2500 2275 2000 1864 1500 1467 1309 1300 1000 1040 982 1176 791 500 525 320 34 104 114 82 111 157 0 1988 1990 1992 1994 1996 1998 2000 2002 2004 Total RP Machines Sold from 1985 to 2005 (Wohlers Report, 2004) 23

Exhibit M The Three Segments of the RP Industry (Wohlers Report, 2004) 24

APPENDIX B: Financial Statements 3D Systems Income Statement: 3D Systems all numbers in thousands PERIOD ENDING 31-Dec-03 31-Dec-02 31-Dec-01 Total Revenue 110,015 115,961 121,224 Cost of Revenue 66,873 69,340 67,849 Gross Profit 43,142 46,621 53,375 Operating Expenses Research Development 9,031 15,366 10,710 Selling General and Administrative 48,643 48,331 43,761 Non Recurring 442 4,354 - Others - - - Total Operating Expenses - - - Operating Income or Loss (14,974) (21,430) (1,096) Income from Continuing Operations Total Other Income/Expenses Net - 18,464 - Earnings Before Interest And Taxes (14,974) (2,966) (1,096) Interest Expense 2,902 2,991 1,033 Income Before Tax (17,876) (5,957) (2,129) Income Tax Expense 1,107 8,909 (788) Minority Interest - - - Net Income From Continuing Ops (18,983) (14,866) (1,341) Non-recurring Events 25

Discontinued Operations - - - Extraordinary Items - - - Effect Of Accounting Changes (7,040) - - Other Items - - - Net Income (26,023) (14,866) (1,341) Preferred Stock And Other Adjustments (867) - - Net Income Applicable To Common Shares ($26,890) ($14,866) ($1,341) 26

Balance Sheet: 3D Systems All numbers in thousands PERIOD ENDING 31-Dec-03 31-Dec-02 31-Dec-01 Assets Current Assets Cash And Cash Equivalents 24,507 2,279 5,948 Short Term Investments - - - Net Receivables 22,884 27,742 43,950 Inventory 9,694 12,564 17,822 Other Current Assets 2,087 3,687 2,817 Total Current Assets 59,172 46,272 70,537 Long Term Investments - 553 1,750 Property Plant and Equipment 11,455 15,339 17,864 Goodwill 44,900 44,456 44,158 Intangible Assets 12,948 22,607 21,506 Accumulated Amortization - - - Other Assets 2,990 3,006 3,572 Deferred Long Term Asset Charges - - 6,618 Total Assets 131,465 132,233 166,005 Liabilities Current Liabilities Accounts Payable 23,765 26,359 28,500 Short/Current Long Term Debt 165 12,950 9,286 Other Current Liabilities 16,419 15,571 15,321 Total Current Liabilities 40,349 54,880 53,107 Long Term Debt 36,629 14,090 25,640 Other Liabilities 2,579 3,397 3,329 27

Deferred Long Term Liability Charges - - 4,210 Minority Interest - - - Negative Goodwill - - - Total Liabilities 79,557 72,367 86,286 Stockholders' Equity Misc Stocks Options Warrants - - - Redeemable Preferred Stock 15,210 - - Preferred Stock - - - Common Stock 13 13 13 Retained Earnings (47,442) (21,419) (5,263) Treasury Stock (45) - (1,540) Capital Surplus 85,588 84,931 93,173 Other Stockholder Equity (1,416) (3,659) (6,664) Total Stockholder Equity 36,698 59,866 79,719 Net Tangible Assets ($21,150) ($7,197) $14,055 28

Cash Flow: 3D Systems all numbers in thousands PERIOD ENDING 31-Dec-03 31-Dec-02 31-Dec-01 Net Income (26,023) (14,866) (1,341) Operating Activities, Cash Flows Provided By or Used In Depreciation 9,417 9,902 7,704 Adjustments To Net Income 11,344 (12,170) 299 Changes In Accounts Receivables 6,801 12,839 2,151 Changes In Liabilities (5,884) (1,353) (1,780) Changes In Inventories 2,345 7,088 (2,047) Changes In Other Operating Activities 3,182 (126) 1,663 Total Cash Flow From Operating Activities 1,182 1,314 6,649 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures (874) (3,210) (3,317) Investments - - - Other Cashflows from Investing Activities (1,257) (7,805) (54,771) Total Cash Flows From Investing Activities (2,131) (11,015) (58,088) Financing Activities, Cash Flows Provided By or Used In Dividends Paid (641) - - Sale Purchase of Stock 15,263 13,544 10,390 Net Borrowings 8,807 (7,701) 30,517 Other Cash Flows from Financing Activities (1,200) - - Total Cash Flows From Financing Activities 22,229 5,843 40,907 Effect Of Exchange Rate Changes 395 189 (2,519) Change In Cash and Cash Equivalents $21,675 ($3,669) ($13,051) 29

Stratasys Income Statement: Stratasys All numbers in thousands PERIOD ENDING 31-Dec-03 31-Dec-02 31-Dec-01 Total Revenue 50,890 39,808 37,572 Cost of Revenue 18,108 15,441 14,571 Gross Profit 32,782 24,366 23,001 Operating Expenses Research Development 5,047 4,688 4,915 Selling General and Administrative 18,993 16,065 14,598 Non Recurring - - - Others - - - Total Operating Expenses - - - Operating Income or Loss 8,742 3,613 3,488 Income from Continuing Operations Total Other Income/Expenses Net 526 467 306 Earnings Before Interest And Taxes 9,269 4,080 3,794 Interest Expense 124 178 271 Income Before Tax 9,145 3,902 3,523 Income Tax Expense 2,989 791 1,010 Minority Interest - - - Net Income From Continuing Ops 6,156 3,111 2,513 Non-recurring Events Discontinued Operations - - - Extraordinary Items - - - 30

Effect Of Accounting Changes - - - Other Items - - - Net Income 6,156 3,111 2,513 Preferred Stock And Other Adjustments - - - Net Income Applicable To Common Shares $6,156 $3,111 $2,513 31

Balance Sheet: Stratasys All numbers in thousands PERIOD ENDING 31-Dec-03 31-Dec-02 31-Dec-01 Assets Current Assets Cash And Cash Equivalents 44,544 14,194 10,211 Short Term Investments 1,348 - - Net Receivables 15,934 10,766 12,379 Inventory 6,424 6,537 6,878 Other Current Assets 2,810 921 559 Total Current Assets 71,060 32,419 30,027 Long Term Investments 1,513 - - Property Plant and Equipment 6,545 5,937 6,007 Goodwill - - - Intangible Assets 2,497 2,953 3,288 Accumulated Amortization - - - Other Assets 362 117 267 Deferred Long Term Asset Charges 2,124 2,174 2,363 Total Assets 84,100 43,600 41,951 Liabilities Current Liabilities Accounts Payable 4,940 4,142 3,736 Short/Current Long Term Debt - 62 185 Other Current Liabilities 5,264 4,474 4,511 Total Current Liabilities 10,204 8,677 8,432 Long Term Debt - 2,157 2,216 Other Liabilities - - - 32

Deferred Long Term Liability Charges - - - Minority Interest - - - Negative Goodwill - - - Total Liabilities 10,204 10,834 10,648 Stockholders' Equity Misc Stocks Options Warrants - - - Redeemable Preferred Stock - - - Preferred Stock - - - Common Stock 120 65 61 Retained Earnings 11,064 4,908 1,798 Treasury Stock (7,171) (7,171) (3,428) Capital Surplus 69,924 35,025 32,944 Other Stockholder Equity (41) (62) (72) Total Stockholder Equity 73,896 32,766 31,303 Net Tangible Assets $71,400 $29,813 $28,015 33

Cash Flow: Stratasys All numbers in thousands PERIOD ENDING 31-Dec-03 31-Dec-02 31-Dec-01 Net Income 6,156 3,111 2,513 Operating Activities, Cash Flows Provided By or Used In Depreciation 2,534 2,401 2,280 Adjustments To Net Income 2,531 309 349 Changes In Accounts Receivables (5,148) 1,492 (636) Changes In Liabilities 1,613 384 200 Changes In Inventories 223 (486) 1,464 Changes In Other Operating Activities (3,418) (214) 75 Total Cash Flow From Operating Activities 4,490 6,997 6,244 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures (2,340) (603) (3,928) Investments (1,575) - - Other Cashflows from Investing Activities (516) (564) (501) Total Cash Flows From Investing Activities (4,431) (1,167) (4,429) Financing Activities, Cash Flows Provided By or Used In Dividends Paid - - - Sale Purchase of Stock 32,524 (1,658) (413) Net Borrowings (2,218) (183) 2,083 Other Cash Flows from Financing Activities - - - Total Cash Flows From Financing Activities 30,306 (1,841) 1,670 Effect Of Exchange Rate Changes (15) (8) (11) Change In Cash and Cash Equivalents $30,351 $3,982 $3,474 34

APPENDIX C: Porter s Five Forces Analysis Bargaining Power of Complementing Industries Significant Materials are a key component to success of RP technology Exclusive meeting of customer needs via Material/Machine Compatibility DSM Somos Ciba Threat of New Entrants High - expiration of key patents and commoditization of 3D Printing Sony Objet Geometries, Ltd. Optomec Competitive Rivalry within the Rapid Prototyping Industry High extreme competition among the different technologies in vying for market share of each sub-market 3D Systems Stratasys Z Corp Solidscape EOS GmbH Arcam Bargaining Power of Customers High significant investments and long term maintenance contracts Automotive, Aerospace, and Consumer Products Industries Threat of Substitutes Bargaining Power of Suppliers Low components (e.g., optics, lasers, control systems, etc.) are readily available High within the RP industry in terms of trading off one technology for another based on performance and material properties Low with respect to other prototype technologies such as subtractive manufacturing (e.g., CNC) based mainly on geometric limitations in parts produced 35