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This paper presents a new technique to simultaneously model in both the physical and virtual worlds. The intended application domain for this technique is industrial design. A designer physically sculpts a 3D model from foam using a hand-held hot wire foam cutter. Both the foam and cutting tool are tracked, allowing the system to digitally replicate the sculpting process to produce a matching 3D virtual model. Spatial Augmented Reality is used to project visualizations onto the foam. Inspired by the needs of industrial designers, we have developed two visualizations for sculpting specific models: Target, which shows where foam needs to be removed to produce a model, and Cut Animation, which projects the paths for cuts to be made to reproduce a previous artifact. A third visualization of the wireframe of the generated model is projected onto the foam and used for verification. The final visualization employs 3D procedural textures such as a wood grain texture, providing a simulation of volumetric rendering. Volumetric rendering techniques such as this provide a more natural look that is projected onto the foam. Once the object has been modeled physically and virtually, the designer is able to annotate and paint the finished model. The system has been evaluated through a user study conducted with students from the School of Industrial Design at the University of South Australia.