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<SEC-DOCUMENT>0001144204-04-001218.txt : 20040211
<SEC-HEADER>0001144204-04-001218.hdr.sgml : 20040211
<ACCEPTANCE-DATETIME>20040211151936
ACCESSION NUMBER:		0001144204-04-001218
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20031231
FILED AS OF DATE:		20040211

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PRECISION OPTICS CORPORATION INC
		CENTRAL INDEX KEY:			0000867840
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845]
		IRS NUMBER:				042795294
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-10647
		FILM NUMBER:		04586078

	BUSINESS ADDRESS:	
		STREET 1:		22 EAST BROADWAY
		CITY:			GARDNER
		STATE:			MA
		ZIP:			01440-3338
		BUSINESS PHONE:		9786301800

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PRECISION OPTICS CORP INC
		DATE OF NAME CHANGE:	19600201
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>form10qsb.htm
<TEXT>
<html>

<head>
<title>FORM 10</title>
</head>

<body>

<p align="center">
<font style="DISPLAY: inline; FONT-WEIGHT: bold; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
FORM 10-QSB</font><font face="Times New Roman, serif" size="2"> </font> </p>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 14.8pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  <font style="DISPLAY: inline; FONT-WEIGHT: bold; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  U.S. SECURITIES AND EXCHANGE COMMISSION</font><font face="Times New Roman, serif" size="2">
  </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 14.8pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  <font style="DISPLAY: inline; FONT-WEIGHT: bold; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  Washington, DC 20549</font><font face="Times New Roman, serif" size="2">
  </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 14.8pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
&nbsp;</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 14.8pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  <font style="DISPLAY: inline; FONT-WEIGHT: bold; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)</font><font face="Times New Roman, serif" size="2">
  </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 14.8pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  <font style="DISPLAY: inline; FONT-WEIGHT: bold; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  OF THE SECURITIES EXCHANGE ACT OF 1934</font><font face="Times New Roman, serif" size="2">
  </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 14.8pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
&nbsp;</div>
<div>
  <font face="Times New Roman, serif" size="2">For the quarterly period ended December 31, 2003
  </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  <br>
  Commission file number </font>
  <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif; TEXT-DECORATION: underline" size="2">
  001-10647</font><font face="Times New Roman, serif" size="2"><font id="TAB2" style="COLOR: black; LETTER-SPACING: 28pt">&nbsp; &nbsp;</font>&nbsp;</font></div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
&nbsp;</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  <font face="Times New Roman, serif" size="2">PRECISION OPTICS CORPORATION, INC.</font></div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  <hr align="left" width="100%" noShade SIZE="1">
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  (Exact name of small business issuer as specified in its charter)</font><font face="Times New Roman, serif" size="2"> <br>
&nbsp;</font></div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  &nbsp;</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  <table cellSpacing="0" cellPadding="0" width="100%" align="center" bgColor="#ffffff" border="0">
    <tr bgColor="#ffffff">
      <td width="50%">
      <div align="center">
        <font face="Times New Roman, serif" size="2">
        <u>&nbsp;Massachusetts</u></font></div>
      </td>
      <td width="50%">
      <div align="center">
        <font face="Times New Roman, serif" size="2">
        <u>04-2795294</u></font></div>
      </td>
    </tr>
    <tr bgColor="#ffffff">
      <td width="50%">
      <p align="center"><font face="Times New Roman, serif" size="2">&nbsp;(State or other jurisdiction of incorporation or
      organization)</font></td>
      <td width="50%">
      <p align="center"><font face="Times New Roman, serif" size="2">&nbsp;(I.R.S. Employer Identification No.)
      </font> </td>
    </tr>
  </table>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font face="Times New Roman, serif" size="2">
  <font id="TAB2" style="COLOR: black; LETTER-SPACING: 28pt">&nbsp;&nbsp;</font>&nbsp;</font><font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif; TEXT-DECORATION: underline" size="2">
  </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  &nbsp;</div>
<div align="center">
  <font face="Times New Roman, serif" size="2">22 East Broadway, Gardner, Massachusetts 01440-3338&nbsp;
  </font>
  <hr align="left" width="100%" noShade SIZE="1">
</div>
<div align="center">
  <font face="Times New Roman, serif" size="2">(Address of principal executive offices) (Zip Code)
  </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font face="Times New Roman, serif" size="2">
  <br>
&nbsp;</font></div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  <font face="Times New Roman, serif" size="2">(978) 630-1800 </font> <hr align="left" width="100%" noShade SIZE="1">
  <p>
  <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  (Issuer&#146;s telephone number, including area code)</font><font face="Times New Roman, serif" size="2">
  </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font face="Times New Roman, serif" size="2">
  <br>
&nbsp;</font></div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  Check whether the issuer (1) filed all reports required to be filed by Section
  13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 the past 90
  days.</font><font face="Times New Roman, serif" size="2"> </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
&nbsp;</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  Yes (X) No ( )</font><font face="Times New Roman, serif" size="2"> </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
&nbsp;</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  The number of shares outstanding of issuer&#146;s common stock, par value $.01 per
  share, at January 31, 2004 was 1,752,052 shares.</font><font face="Times New Roman, serif" size="2">
  </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
&nbsp;</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 12.5pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  Transitional Small Business Disclosure Format (check one):</font><font face="Times New Roman, serif" size="2">
  </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 18pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  Yes ( ) No (X)</font><font face="Times New Roman, serif" size="2"> </font></div>
  <hr STYLE="page-break-after:always" color="#000000" size="1">

<div style="display: block; text-indent: 0pt; line-height: 14.8pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="center">
  <font size="2"><b>PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES&nbsp;
  </b><br>
&nbsp;</font><TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600>
<TR VALIGN=Bottom>
     <TH COLSPAN=2><font size="2">INDEX</font></TH>
     <TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=92% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART I.
     &nbsp;&nbsp;&nbsp;FINANCIAL INFORMATION:</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=2% ALIGN=RIGHT><u><font size="2">Page </font></u></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 1
     &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated Financial Statements (Unaudited)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated Balance Sheets &#151;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 31, 2003 and June 30, 2003</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
      <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated
        Statements of Operations &#151;</FONT></TD>
      <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Three Months  Ended December 31, 2003 and 2002</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Six Months Ended December 31, 2003 and 2002</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
      <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated
        Statements of Cash Flows &#151;</FONT></TD>
      <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Six Months Ended December 31, 2003 and 2002</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
     &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notes to Consolidated Financial Statements</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 2
     &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management&#146;s Discussion and Analysis of</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial Condition and Results of Operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 3
     &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Controls and Procedures</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART II.   OTHER INFORMATION</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Items 1-3
     &nbsp;Not Applicable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 4
     &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Submission of Matters to a Vote of Security Holders</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 5
     &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other Information</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 6
     &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exhibits and Reports on Form 8-K</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>

                                <p align="left"><font size="2">
                                &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Exhibits

                                <br>
                                &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Reports on Form 8-K
                                </font></p>
  <hr STYLE="page-break-after:always" color="#000000" size="1">

  <p align="left"><u>Item 1</u></p>
  <p> <font style="display: inline; font-weight: bold; font-family: Times New Roman" size="2">
    PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES<br>
    CONSOLIDATED BALANCE SHEETS</font><br>
    <font style="display: inline; font-weight: bold; font-family: Times New Roman" size="2">(UNAUDITED)</font><font size="2" face="Times New Roman">
    <br>
    </font> <font style="display: inline; font-weight: bold; font-family: Times New Roman; text-decoration: underline" size="2">
    <br>
    <br>
    ASSETS</font><font size="2" face="Times New Roman"> </font> </div>
<div style="display: block; text-indent: 0pt; line-height: 14.8pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="center">
  <font size="2" face="Times New Roman">&nbsp;</font></div>
<table cellSpacing="0" cellPadding="0" width="100%" border="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr vAlign="bottom">
    <td align="left" width="65%">&nbsp;</td>
    <td align="left" width="3%">&nbsp;</td>
    <td align="center" width="13%"> <b> <font style="display: inline; font-family: Times New Roman; " size="2">
      December 31, <br>
      2003</font><font size="2" face="Times New Roman"> </font></b></td>
    <td align="center" width="4%">&nbsp;</td>
    <td align="center" width="13%"> <b> <font style="display: inline; font-family: Times New Roman; " size="2">
      June 30, <br>
      2003</font><font size="2" face="Times New Roman"> </font></b></td>
    <td align="left" width="2%">&nbsp;</td>
  </tr>
  <tr>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr vAlign="bottom">
    <td align="left" width="65%"><font size="2">CURRENT ASSETS<br>
      &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and Cash Equivalents</font></td>
    <td align="left" width="3%"><font size="2">&nbsp;</font></td>
    <td align="right" width="13%"><font size="2">$&nbsp;&nbsp;&nbsp;1,726,172</font></td>
    <td align="left" width="4%"><font size="2">&nbsp;</font></td>
    <td align="right" width="13%"><font size="2">$&nbsp;&nbsp;&nbsp;3,504,414</font></td>
    <td align="left" width="2%"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts
      Receivable, Net</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">113,190</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">191,669</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">1,254,138</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">1,257,288</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid
      Expenses and Other Current Assets</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">215,669</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">91,213</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assets
      Held for Sale</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">&#151;</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">152,550</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
      Current Assets</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">3,309,169</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">5,197,134</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">PROPERTY AND EQUIPMENT</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">4,197,982</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">4,013,680</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less:
      Accumulated Depreciation</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">(3,806,067</font></td>
    <td align="left"><font size="2">)</font></td>
    <td align="right"><font size="2">(3,723,350</font></td>
    <td align="left"><font size="2">)</font></td>
  </tr>
  <tr>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
      Property and Equipment</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">391,915</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">290,330</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">OTHER ASSETS</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">238,890</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">236,156</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">TOTAL ASSETS</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">$&nbsp;&nbsp;&nbsp;3,939,974</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">$&nbsp;&nbsp;&nbsp;5,723,620</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr vAlign="bottom">
    <td align="left" colspan="6"> <p align="center"><u><b><font size="2">LIABILITIES
        AND STOCKHOLDERS' EQUITY<br>
        &nbsp;</font></b></u></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">CURRENT LIABILITIES</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right">&nbsp;</td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Current
      Portion of Capital Lease Obligation</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right" valign="bottom"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,826</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts
      Payable</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">99,474</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">141,398</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued
      Employee Compensation</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">200,491</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">213,543</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued
      Professional Services</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">50,994</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">118,284</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued
      Warranty Expense</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">50,000</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">50,000</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
      Accrued Liabilities</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">6,206</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">6,966</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
      Current Liabilities</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">407,165</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">534,017</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">OTHER</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,555</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">STOCKHOLDERS' EQUITY</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common
      Stock, $.01 par value-</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Authorized
      &#151; 20,000,000 shares</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issued
      and Outstanding &#151; 1,752,052 shares</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;at
      December 31, 2003 and June 30, 2003</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">17,521</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">17,521</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional
      Paid-in Capital</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">27,770,175</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">27,770,175</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated
      Deficit</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">(24,254,887</font></td>
    <td align="left"><font size="2">)</font></td>
    <td align="right"><font size="2">(22,599,648</font></td>
    <td align="left"><font size="2">)</font></td>
  </tr>
  <tr>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
      Stockholders' Equity</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">3,532,809</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">5,188,048</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade SIZE="1"></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">TOTAL LIABILITIES AND STOCKHOLDERS'</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr vAlign="bottom">
    <td align="left"><font size="2">&nbsp;&nbsp;&nbsp;EQUITY</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">$&nbsp;&nbsp;&nbsp;3,939,974</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2">$&nbsp;&nbsp;&nbsp;5,723,620</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr color="black" noShade></td>
    <td align="left">&nbsp;</td>
  </tr>
</table>

  <p align="center"><font size="2">3</font></p>
  <hr STYLE="page-break-after:always" color="#000000" size="1">

<div style="display: block; text-indent: 0pt; line-height: 14.8pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="center">
  <font style="display: inline; font-weight: bold; font-family: Times New Roman" size="2">
  PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES</font><font size="2" face="Times New Roman">
  </font>
</div>
<div style="display: block; text-indent: 0pt; line-height: 14.8pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="center">
  <font style="display: inline; font-weight: bold; font-family: Times New Roman" size="2">
  CONSOLIDATED STATEMENTS OF OPERATIONS</font><font size="2" face="Times New Roman">
  </font>
</div>
<div style="display: block; text-indent: 0pt; line-height: 14.8pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="center">
  <font style="display: inline; font-weight: bold; font-family: Times New Roman" size="2">
  FOR THE THREE AND SIX MONTHS ENDED</font><font size="2" face="Times New Roman">
  </font>
</div>
<div style="display: block; text-indent: 0pt; line-height: 14.8pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="center">
  <font style="display: inline; font-weight: bold; font-family: Times New Roman" size="2">
  December 31, 2003 AND 2002 </font>
</div>
<div style="display: block; text-indent: 0pt; line-height: 14.8pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="center">
  <font style="display: inline; font-weight: bold; font-family: Times New Roman" size="2">
  (UNAUDITED) <br>
&nbsp;</font></div>
<div align="center">
  <center>
  <table id="10001" cellSpacing="0" cellPadding="0" width="100%" border="0" height="0" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td vAlign="bottom" align="middle" width="43%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="middle" width="28%" colSpan="6">
      <font face="Times New Roman"><strong><font size="2">&#151; THREE MONTHS &#151;</font></strong><font size="2">&nbsp;&nbsp;&nbsp;</font></font></td>
      <td vAlign="bottom" align="middle" width="27%" colSpan="6">
      <font face="Times New Roman"><strong><font size="2">&#151;SIX MONTHS&#151;</font></strong><font size="2">&nbsp;&nbsp;</font></font></td>
    </tr>
    <tr>
      <td vAlign="bottom" align="middle" width="43%">
      <div style="display: block; text-indent: 0pt; line-height: 14.8pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="center">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      </td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="middle" width="14%" colSpan="3">
      <div style="display: block; text-indent: 0pt; line-height: 12.5pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="center">
        <font style="display: inline; font-weight: bold; font-family: Times New Roman" size="2">
        2003</font><font size="2" face="Times New Roman"> &nbsp;&nbsp;&nbsp;&nbsp;</font><hr width="90%" noShade color="#000000" size="1">
      </div>
      </td>
      <td vAlign="bottom" align="middle" width="14%" colSpan="3">
      <div style="display: block; text-indent: 0pt; line-height: 12.5pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="center">
        <font style="display: inline; font-weight: bold; font-family: Times New Roman" size="2">
        2002</font><font size="2" face="Times New Roman"> &nbsp;&nbsp;&nbsp;</font><hr width="90%" noShade color="#000000" size="1">
      </div>
      </td>
      <td vAlign="bottom" align="middle" width="14%" colSpan="3">
      <div style="display: block; text-indent: 0pt; line-height: 12.5pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="center">
        <font style="display: inline; font-weight: bold; font-family: Times New Roman" size="2">
        2003</font><hr width="90%" noShade color="#000000" size="1">
      </div>
      </td>
      <td vAlign="bottom" align="middle" width="13%" colSpan="3">
      <div style="display: block; text-indent: 0pt; line-height: 12.5pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="center">
        <font style="display: inline; font-weight: bold; font-family: Times New Roman" size="2">
        2002</font><font size="2" face="Times New Roman"> &nbsp;&nbsp;&nbsp;&nbsp;</font><hr width="90%" noShade color="#000000" size="1">
      </div>
      </td>
    </tr>
    <tr>
      <td vAlign="bottom" align="left" width="43%">
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        REVENUES</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;$</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        &nbsp;&nbsp;&nbsp; 226,884</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        $</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        589,759</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font><font style="display: inline; font-size: 10pt; font-family: Times New Roman">$</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">&nbsp;865,690</font><font size="2" face="Times New Roman">
        </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font><font style="display: inline; font-size: 10pt; font-family: Times New Roman">$</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">&nbsp;1,132,202</font><font size="2" face="Times New Roman">
        </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
    </tr>
    <tr>
      <td vAlign="bottom" align="left" width="43%">
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        COST OF GOODS SOLD</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        461,525</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        480,199</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        1,047,788</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        1,011,937</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
    </tr>
    <tr>
      <td vAlign="bottom" width="43%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000" size="1"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000" size="1"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000" size="1"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000" size="1"></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
    </tr>
    <tr>
      <td vAlign="bottom" align="left" width="43%">
      <div style="display: block; text-indent: 36pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
        <p>
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross Profit (Loss)</font><font size="2" face="Times New Roman"> </font>
      </td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        (234,641</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        109,560</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        (182,098</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        120,265</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
    </tr>
    <tr>
      <td vAlign="bottom" width="43%" height="100%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000" size="1"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000" size="1"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000" size="1"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000" size="1"></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
    </tr>
    <tr>
      <td vAlign="bottom" align="left" width="43%">
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        RESEARCH and DEVELOPMENT</font><font size="2" face="Times New Roman">
        </font>
      </div>
      </td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        334,106</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        339,137</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        601,176</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        649,193</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
    </tr>
    <tr>
      <td vAlign="bottom" align="left" width="43%">
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        SELLING, GENERAL and</font><font size="2" face="Times New Roman"> </font>
      </div>
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        ADMINISTRATIVE EXPENSES </font>
      </div>
      </td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        454,328</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        431,091</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        883,658</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
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      <td vAlign="bottom" align="left" width="1%">
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    <tr>
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      <td vAlign="bottom" align="left" width="1%">
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      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
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      <td vAlign="bottom" align="left" width="1%">
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    <tr>
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      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
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    <tr>
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      </td>
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      </div>
      </td>
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      <td vAlign="bottom" align="right" width="11%">
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      </td>
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    </tr>
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      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
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      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
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      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
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      <td vAlign="bottom" align="right" width="11%">
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        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
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      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
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        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        39,105</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
    </tr>
    <tr>
      <td vAlign="bottom" align="left" width="43%">
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        INTEREST EXPENSE</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        (3</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        (324</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        (49</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        (6,562</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
    </tr>
    <tr>
      <td vAlign="bottom" width="43%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000" size="1"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000" size="1"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000" size="1"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000" size="1"></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
    </tr>
    <tr>
      <td vAlign="bottom" align="left" width="43%">
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net Loss</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font><font style="display: inline; font-size: 10pt; font-family: Times New Roman">$</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">&nbsp;(1,018,790
        </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font></div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font><font style="display: inline; font-size: 10pt; font-family: Times New Roman">$</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">&nbsp;(710,986</font><font size="2" face="Times New Roman">
        </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font><font style="display: inline; font-size: 10pt; font-family: Times New Roman">$</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">&nbsp;(1,655,239</font><font size="2" face="Times New Roman">
        </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font><font style="display: inline; font-size: 10pt; font-family: Times New Roman">$</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">&nbsp;(1,502,877</font><font size="2" face="Times New Roman">
        </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
    </tr>
    <tr>
      <td vAlign="bottom" width="43%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000"></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
    </tr>
    <tr>
      <td vAlign="bottom" align="left" width="43%">
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        Basic and Diluted Loss Per Share </font>
      </div>
      </td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font><font style="display: inline; font-size: 10pt; font-family: Times New Roman">$</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">&nbsp;(0.58</font><font size="2" face="Times New Roman">
        </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font></div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font><font style="display: inline; font-size: 10pt; font-family: Times New Roman">$</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">&nbsp;(0.41</font><font size="2" face="Times New Roman">
        </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font></div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font><font style="display: inline; font-size: 10pt; font-family: Times New Roman">$</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">&nbsp;(0.94</font><font size="2" face="Times New Roman">
        </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font><font style="display: inline; font-size: 10pt; font-family: Times New Roman">$</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
          <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
            <font style="display: inline; font-size: 10pt; font-family: Times New Roman">&nbsp;(0.86</font><font size="2" face="Times New Roman">
            </font> </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        )</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
    </tr>
    <tr>
      <td vAlign="bottom" width="43%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000"></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
    </tr>
    <tr>
      <td vAlign="bottom" align="left" width="43%">
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -31.5pt" align="justify">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -31.5pt" align="justify">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        Weighted Average Common Shares </font>
      </div>
      <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: -18pt" align="left">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        Outstanding </font>
      </div>
      </td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        1,752,052</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        1,752,052</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
&nbsp;</div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        1,752,052</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="11%">
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font size="2" face="Times New Roman">&nbsp;</font></div>
      <div style="display: block; text-indent: 0px; line-height: 11.35pt; white-space: pre; margin-left: 0px; margin-right: 0px">
        <font style="display: inline; font-size: 10pt; font-family: Times New Roman">
        1,752,052</font><font size="2" face="Times New Roman"> </font>
      </div>
      </td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
    </tr>
    <tr>
      <td vAlign="bottom" width="43%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td width="2%"><font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000"></td>
      <td vAlign="bottom" align="left" width="2%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
      <td vAlign="bottom" align="right" width="12%" colSpan="2">
      <hr noShade color="#000000"></td>
      <td vAlign="bottom" align="left" width="1%">
      <font size="2" face="Times New Roman">&nbsp;</font></td>
    </tr>
  </table>
  </center>
</div>
<table id="PGBRK" cellSpacing="0" cellPadding="0" width="100%" border="0">
  <tr>
    <td vAlign="bottom" width="100%">
    <font size="2" face="Times New Roman">&nbsp;</font></td>
  </tr>
  </table>

<H1 ALIGN=CENTER><font size="2">4</font></H1>


  <hr STYLE="page-break-after:always" color="#000000" size="1">

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PRECISION OPTICS
CORPORATION, INC. AND SUBSIDIARIES<br>
CONSOLIDATED STATEMENTS OF CASH FLOWS<br>
FOR THE SIX MONTHS ENDED<br>
DECEMBER 31, 2003 AND 2002<br>
(UNAUDITED) </FONT></H1>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH="100%" style="border-collapse: collapse" bordercolor="#111111">
  <TR VALIGN=Bottom>
    <TH COLSPAN=2>&nbsp;</TH>
    <TH COLSPAN=2>&nbsp;</TH>
    <TH COLSPAN=2>&nbsp;</TH>
  </TR>
  <TR VALIGN=Bottom>
    <TD WIDTH=69% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD WIDTH=11% ALIGN=center><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2003</FONT></b></TD>
    <TD WIDTH=4% ALIGN=center><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></b></TD>
    <TD WIDTH=11% ALIGN=center><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2002</FONT></b></TD>
    <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <tr>
    <TD COLSPAN=2></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
  </tr>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CASH FLOWS
      FROM OPERATING ACTIVITIES:</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
      Loss</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$(1,655,239</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$(1,502,877</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Adjustments
      to Reconcile Net Loss to Net Cash</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Used
      In Operating Activities &#151;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation
      and Amortization</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>103,870</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>130,383</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision
      for Asset Impairment and Restructuring</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>53,131</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss
      on Sale of Assets Held for Sale</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,041</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6,872</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes
      in Operating Assets and Liabilities &#151;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts
      Receivable, Net</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>78,479</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>96,574</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,150</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(156,366</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid
      Expenses</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(124,456</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(140,980</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Refundable
      Income Taxes</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,849</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts
      Payable</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(41,924</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>40,446</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued
      Restructuring Expense</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(221,102</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer
      Advances</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(21,000</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
      Accrued Expenses</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(82,657</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(39,704</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
      Cash Used In Operating Activities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,718,777</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,734,477</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CASH FLOWS
      FROM INVESTING ACTIVITIES:</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases
      of Property and Equipment</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(31,752</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(16,321</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
      Proceeds from Sale of Assets Held for Sale</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>550,091</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase
      in Other Assets</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(23,887</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(11,948</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
      Cash Provided by (Used In) Investing Activities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(55,639</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>521,822</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CASH FLOWS
      FROM FINANCING ACTIVITIES:</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayment
      of Capital Lease Obligation</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,826</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(23,729</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
      Cash Used In Financing Activities</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,826</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(23,729</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NET DECREASE
      IN CASH AND CASH EQUIVALENTS</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,778,242</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,236,384</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><font face="Times New Roman, Times, Serif" size="2">&nbsp;</font></TD>
    <TD ALIGN=LEFT>&nbsp;</TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=LEFT>&nbsp;</TD>
    <TD ALIGN=RIGHT>&nbsp;</TD>
    <TD ALIGN=LEFT>&nbsp;</TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CASH AND
      CASH EQUIVALENTS AT BEGINNING OF PERIOD</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,504,414</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,825,601</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CASH AND
      CASH EQUIVALENTS AT END OF PERIOD</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;1,726,172</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;4,589,217</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
      Paid for-</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;49</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,562</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD>
    <TD></TD>
  </TR>
  <TR VALIGN=Bottom>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
      Taxes</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#151;</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
    <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,824</FONT></TD>
    <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
  </TR>
  <TR>
    <TD COLSPAN=2></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD>
    <TD></TD>
    <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=2></TD>
    <TD></TD>
  </TR>
</TABLE>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->
<A NAME=A005></A>
<H1 ALIGN=CENTER><font size="2">5</font></H1>

  <hr STYLE="page-break-after:always" color="#000000" size="1">

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PRECISION OPTICS
CORPORATION, INC.<br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          <U>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</U> </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 style="border-collapse: collapse" bordercolor="#111111">
<TR VALIGN=TOP>
<TD width="3%">&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
accompanying consolidated financial statements include the accounts of Precision Optics
Corporation, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 style="border-collapse: collapse" bordercolor="#111111">
<TR VALIGN=TOP>
<TD WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
These
consolidated financial statements have been prepared by the Company, without audit, and
reflect normal recurring adjustments which, in the opinion of management, are necessary
for a fair statement of the results of the second quarter and first half of the
Company&#146;s fiscal year 2004. These consolidated financial statements do not include
all disclosures associated with annual consolidated financial statements and, accordingly,
should be read in conjunction with footnotes contained in the Company&#146;s consolidated
financial statements for the year ended June 30, 2003 together with the auditors&#146;
report filed under cover of the Company&#146;s 2003 Annual Report on Form 10-KSB. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Basic
loss per share is computed by dividing net loss by the weighted average number of shares
of common stock outstanding during the period. For the three and six months ended December
31, 2003 and 2002, the effect of stock options and warrants was antidilutive; therefore,
they were not included in the computation of diluted loss per share. The number of shares
issuable upon the exercise of outstanding stock options and warrants that were excluded
from the computation as their effect would be antidilutive were approximately 220,138 and
202,977, for the three months ended December 31, 2003 and 2002, respectively, and
approximately 214,026 and 202,255 for the six months ended December 31, 2003 and 2002
respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A006></A>
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;
<u>INVENTORIES </u> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories
are stated at the lower of cost (first-in, first-out) or market and consist of the
following: </FONT></P>


                                                                                &nbsp;<div align="center">
  <center>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600 style="border-collapse: collapse" bordercolor="#111111">
<TR VALIGN=Bottom>
     <TH COLSPAN=2>&nbsp;</TH>
     <TH COLSPAN=2>
     <p align="left"><font size="2">December 31, 2003 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></TH>
     <TH COLSPAN=2><font size="2">June 30, 2003 &nbsp;&nbsp;&nbsp;</font></TH></TR>
<tr>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
        <TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
        <TD ALIGN=LEFT>&nbsp;</TD>
</tr>
<TR VALIGN=Bottom>
     <TD WIDTH=50% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Raw Materials</FONT></TD>
     <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=19% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;656,677</FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=19% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;679,647</FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Work-In-Progress</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>391,680</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>379,636</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Finished Goods</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>205,781</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>198,005</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
        <TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
        <TD ALIGN=LEFT>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Inventories</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$1,254,138</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$1,257,288</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<tr>
     <TD ALIGN=LEFT>&nbsp;</TD><TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black></TD>
        <TD ALIGN=LEFT>&nbsp;</TD>
     <TD ALIGN=RIGHT><HR NOSHADE COLOR=Black SIZE=1></TD>
        <TD ALIGN=LEFT>&nbsp;</TD>
</tr>
</TABLE>


  </center>
</div>


<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A007></A>
<P ALIGN=center><font size="2">6</font></P>

  <hr STYLE="page-break-after:always" color="#000000" size="1">

<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>STOCK-BASED
COMPENSATION</u> </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company accounts for its stock-based compensation using the intrinsic value method
provided for under Accounting Principles Board Opinion No. 25, <I>Accounting for Stock
Issued to Employees </I>and related interpretations. Under APB No. 25 and related
interpretations, compensation cost is recognized based on the difference, if any, on the
date of grant between the fair value of the Company&#146;s stock and the amount an
employee must pay to acquire the stock. Statement of Financial Accounting Standards
(&#147;SFAS&#148;) No. 123, <I>Accounting for Stock-Based Compensation</I>, establishes a
fair-value-based method of accounting for stock-based compensation plans. The Company has
adopted the disclosure-only alternative under SFAS No. 123, which requires the disclosure
of the pro forma effects on net loss and net loss per share as if the fair value
accounting prescribed by SFAS No. 123 had been adopted. </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
No
stock-based employee compensation cost is reflected in net loss, as all options granted
had an exercise price equal to the market value of the underlying common stock on the date
of grant. The following table illustrates the effect on net loss and net loss per share if
the Company had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation: </FONT></TD>
</TR>
</TABLE>
<BR>

<table id="10001" cellSpacing="0" cellPadding="0" width="100%" align="center" height="365">
  <tr>
    <td vAlign="bottom" align="left" width="43%" height="30">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      &nbsp;</div>
    </td>
    <td width="2%" height="30">&nbsp;</td>
    <td vAlign="bottom" align="middle" width="28%" colSpan="6" height="30">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
      <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      3 Months Ended</font>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
      <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      December 31,</font>
    </div>
    </td>
    <td vAlign="bottom" align="middle" width="27%" colSpan="6" height="30">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
      <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      6 Months Ended</font>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
      <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      December 31,</font>
    </div>
    </td>
  </tr>
  <tr>
    <td vAlign="bottom" align="left" width="43%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      &nbsp;</div>
    </td>
    <td width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="middle" width="14%" colSpan="3" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
      <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      2003</font>
    </div>
    </td>
    <td vAlign="bottom" align="middle" width="14%" colSpan="3" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
      <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      2002</font>
    </div>
    </td>
    <td vAlign="bottom" align="middle" width="14%" colSpan="3" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
      <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      2003</font>
    </div>
    </td>
    <td vAlign="bottom" align="middle" width="13%" colSpan="3" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
      <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      2002</font>
    </div>
    </td>
  </tr>
  <tr>
    <td vAlign="bottom" width="43%" height="19">&nbsp;</td>
    <td width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="12%" colSpan="2" height="19">
    <hr noShade color="#000000" size="1"></td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="12%" colSpan="2" height="19">
    <hr noShade color="#000000" size="1"></td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="12%" colSpan="2" height="19">
    <hr noShade color="#000000" size="1"></td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="12%" colSpan="2" height="19">
    <hr noShade color="#000000" size="1"></td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
  </tr>
  <tr>
    <td vAlign="bottom" align="left" width="43%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman, serif">
      Net loss, as reported</font>
    </div>
    </td>
    <td width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      $</font>
    </div>
    </td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (1,018,790</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      )</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      $</font>
    </div>
    </td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (710,986</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      )</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      $</font></div>
    </td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (1,655,239 </font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      )</font></div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      $</font>
    </div>
    </td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (1,502,877</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      )</font>
    </div>
    </td>
  </tr>
  <tr>
    <td vAlign="bottom" align="left" width="43%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      &nbsp;</div>
    </td>
    <td width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
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    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
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    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
  </tr>
  <tr>
    <td vAlign="bottom" align="left" width="43%" height="39">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      Add: Total stock-based employee compensation expense determined under
      fair-value-based method for all awards</font>
    </div>
    </td>
    <td width="2%" height="39">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="39">&nbsp;</td>
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      &nbsp;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (17,651</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="39">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
&nbsp;</div>
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&nbsp;</div>
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      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      )</font>
    </div>
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      &nbsp;</div>
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      &nbsp;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (25,243</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="39">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
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      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      )</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="39">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="39">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
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      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (42,935</font>
    </div>
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    <td vAlign="bottom" align="left" width="2%" height="39">
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      )</font>
    </div>
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    <td vAlign="bottom" align="left" width="1%" height="39">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="39">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
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      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (45,380</font>
    </div>
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      )</font>
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    <hr noShade color="#000000" size="1"></td>
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    <hr noShade color="#000000" size="1"></td>
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  </tr>
  <tr>
    <td vAlign="bottom" align="left" width="43%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      &nbsp;</div>
    </td>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
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    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
  </tr>
  <tr>
    <td vAlign="bottom" align="left" width="43%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      Pro forma net loss</font>
    </div>
    </td>
    <td width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      $</font>
    </div>
    </td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      __(1,036,441</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      )</font>
    </div>
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      $</font>
    </div>
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    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (736,229</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
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      )</font>
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      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      $</font>
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      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (1,698,174</font>
    </div>
    </td>
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      )</font>
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      $</font>
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      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (1,548,257</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="19">
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      )</font>
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    <hr noShade color="#000000"></td>
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    <hr noShade color="#000000"></td>
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    <hr noShade color="#000000"></td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
  </tr>
  <tr>
    <td vAlign="bottom" align="left" width="43%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      &nbsp;</div>
    </td>
    <td width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
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    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
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    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
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  </tr>
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    <td vAlign="bottom" align="left" width="43%" height="30">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      Net loss per share: </font>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      As reported&#150;basic and diluted</font>
    </div>
    </td>
    <td width="2%" height="30">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="30"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">$</font></td>
    <td vAlign="bottom" align="right" width="11%" height="30">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
        <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
        __ (0.58</font> </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="30">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
&nbsp;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      )</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="30"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">$</font></td>
    <td vAlign="bottom" align="right" width="11%" height="30">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
        <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
        (.41</font> </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="30">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
&nbsp;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      )</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="30"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">$</font></td>
    <td vAlign="bottom" align="right" width="11%" height="30">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
        <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
        _ ___(0.94)_</font> </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="30">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="30"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">$</font></td>
    <td vAlign="bottom" align="right" width="11%" height="30">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
        <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
        (.86</font> </div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="30">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
&nbsp;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      )</font>
    </div>
    </td>
  </tr>
  <tr>
    <td vAlign="bottom" width="43%" height="19">&nbsp;</td>
    <td width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="12%" colSpan="2" height="19">
    <hr noShade color="#000000"></td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="12%" colSpan="2" height="19">
    <hr noShade color="#000000"></td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="12%" colSpan="2" height="19">
    <hr noShade color="#000000"></td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="12%" colSpan="2" height="19">
    <hr noShade color="#000000"></td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
  </tr>
  <tr>
    <td vAlign="bottom" align="left" width="43%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      &nbsp;</div>
    </td>
    <td width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
  </tr>
  <tr>
    <td vAlign="bottom" align="left" width="43%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      Pro forma&#150;basic and diluted</font>
    </div>
    </td>
    <td width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      $</font>
    </div>
    </td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      __ (0.59)_</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      $</font>
    </div>
    </td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (.42</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      )</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      $</font>
    </div>
    </td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      _ ___(0.97)_</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      $</font>
    </div>
    </td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (.88</font>
    </div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      )</font>
    </div>
    </td>
  </tr>
  <tr>
    <td vAlign="bottom" width="43%" height="19">&nbsp;</td>
    <td width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="12%" colSpan="2" height="19">
    <hr noShade color="#000000"></td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="12%" colSpan="2" height="19">
    <hr noShade color="#000000"></td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="12%" colSpan="2" height="19">
    <hr noShade color="#000000"></td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="12%" colSpan="2" height="19">
    <hr noShade color="#000000"></td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
  </tr>
  <tr>
    <td vAlign="bottom" align="left" width="43%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      &nbsp;</div>
    </td>
    <td width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="2%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
    <td vAlign="bottom" align="right" width="11%" height="19">
    <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0px; WHITE-SPACE: pre">
      &nbsp;</div>
    </td>
    <td vAlign="bottom" align="left" width="1%" height="19">&nbsp;</td>
  </tr>
</table>
<!-- MARKER FORMAT-SHEET="Para (List) Indent" FSL="Default" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.&nbsp;&nbsp;&nbsp;&nbsp;
          <U>ASSETS HELD FOR SALE</U> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June 2002, certain property and equipment previously invested in the Company&#146;s
telecommunications product line (whose fair value less cost to sell was estimated at
approximately $848,000 at that time) was reclassified to the category of &#147;Assets Held
for Sale&#148; in the Company&#146;s consolidated balance sheet. During fiscal year 2003,
the Company received net proceeds of approximately $553,000 from the sale of a portion of
these assets and incurred an impairment charge of approximately $123,500 based on an
updated independent appraisal of fair market value for the remaining assets. As a cost
saving measure, during the quarter ended December 31, 2003, the Company redeployed $21,400
of assets held for sale and invested $6,300, largely to refurbish certain equipment used
to produce optical thin films for its medical instrument product line. </FONT></P>

<P align="center"><font face="Times New Roman, Times, Serif" size="2">7</font></P>

  <hr STYLE="page-break-after:always" color="#000000" size="1">

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with Statement of Financial Accounting Standards (&#147;SFAS&#148;) No. 144,
<I>Accounting for the Impairment or Disposal of Long-Lived Assets</I>, the Company has
reclassified the residual unsold portion of these assets (whose fair value less cost to
sell is estimated at $131,150) to Property and Equipment at December 31, 2003 in the
accompanying consolidated balance sheet. The Company will resume providing depreciation on
these assets beginning in January 2004, using the straight-line method and estimated life
of two years, and continue its efforts to sell such assets. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A008></A>
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5. &nbsp;&nbsp;&nbsp;&nbsp;<u>LIQUIDITY</u> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company&#146;s working capital was approximately $7,418,000, $4,663,000 and $4,034,000 at
June 30, 2002, June 30, 2003, and September 30, 2003, respectively, and decreased further
to approximately $2,902,000 at December 31, 2003. This trend is primarily the result of
losses generated due to the loss of business from a major stereo endoscope customer. The
prospects for future sales to this customer remain uncertain. Additionally, sales in the
quarter ended December 31, 2003 were adversely affected by customer delays in the
introduction of a new system used in cardiac surgical applications, which employs a
specialty endoscope developed by the Company. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company&#146;s current sources of liquidity consist of its cash and cash equivalents and
accounts receivable. If these liquidity sources, along with revenues from operations, are
not sufficient to fund operations or growth, the Company will require additional
financing. The timing and amount of additional financing requirements depend on a number
of factors, including the status of development and commercialization efforts, the cost of
equipment and personnel to support manufacturing of new and existing products, and the
amount of working capital necessary to maintain operations supporting new products. The
Company is currently reviewing alternatives for raising additional funds through public or
private equity or debt financing. There can be no assurance that such funds will be
available on satisfactory terms, if at all. Lack of necessary funds may require the
Company to delay, scale back or eliminate some or all of its development efforts. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has taken additional measures to realign its cost structure with current revenue
expectations. In January 2004, the Company reduced its workforce by 5 full-time employees,
a 15% reduction. As a result of this action, the Company expects to record a non-recurring
pretax charge to earnings of approximately $51,900 for employee severance benefits in the
quarter ending March 31, 2004. In addition, the Company is in the process of reviewing
other expense areas to determine where additional reductions in discretionary spending can
be achieved. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company believes that the recent introduction of several new products, along with new and
on-going customer relationships, will generate additional revenues, which are required in
order for the Company to achieve profitability; however, there can be no assurance that we
will generate additional revenues. If these additional revenues are not generated on a
timely basis, the Company will be required, and is prepared, to implement further cost
reduction measures, as necessary. The Company believes, based on its operating and
strategic plans, that it will have sufficient funds to conduct operations through at least
the current fiscal year. </FONT></P>

<P align="center"><font face="Times New Roman, Times, Serif" size="2">8</font></P>

  <hr STYLE="page-break-after:always" color="#000000" size="1">

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A009></A>
<P ALIGN=LEFT><u><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 2 </FONT>
</u></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->
<A NAME=A010></A>
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PRECISION OPTICS
CORPORATION, INC. AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1" FSL="Default" -->
<A NAME=A011><font size="2"></font></A>
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management&#146;s
Discussion and Analysis of Financial<br>
Condition and Results of Operations </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A012></A>
<P ALIGN=LEFT><u><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Important Factors
Regarding Forward-Looking Statements </FONT></u></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>When used in this discussion, the
words &#147;believes&#148;, &#147;anticipates&#148;, &#147;intends to&#148;, and similar
expressions are intended to identify forward-looking statements. Such statements are
subject to certain risks and uncertainties which could cause actual results to differ
materially from those projected. These risks and uncertainties, many of which are not
within the Company&#146;s control, include, but are not limited to, uncertainty of future
demand for the Company&#146;s products; the uncertainty and timing of the successful
development of the Company&#146;s new products; the risks associated with reliance on a
few key customers; the Company&#146;s ability to maintain compliance with requirements for
continued listing on the Nasdaq SmallCap Market; the Company&#146;s ability to attract and
retain personnel with the necessary scientific and technical skills; the timing and
completion of significant orders; the timing and amount of the Company&#146;s research and
development expenditures; the timing and level of market acceptance of customers&#146;
products for which the Company supplies components; the level of market acceptance of
competitors&#146; products; the ability of the Company to control costs associated with
performance under fixed price contracts; the performance and reliability of the
Company&#146;s vendors; and the continued availability to the Company of essential
supplies, materials and services. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revision to these
forward-looking statements which may be made to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A013></A>
<P ALIGN=LEFT><u><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Overview </FONT>
</u></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Precision Optics Corporation, a
developer and manufacturer of advanced optical instruments since 1982, designs and
produces high-quality optical thin film coatings, medical instruments, and other advanced
optical systems. The Company&#146;s medical instrumentation line includes laparoscopes,
arthroscopes, endocouplers, and a world-class 3-D endoscope for use in minimally invasive
surgical procedures. Precision Optics Corporation is certified to the ISO 9001 Quality
Standard, and complies with the FDA Good Manufacturing Practices and the European Union
Medical Device Directive for CE Marking of its medical products. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The areas in which the Company does
business are highly competitive and include both foreign and domestic competitors. Many of
the Company&#146;s competitors are larger and have substantially greater resources than
the Company. Furthermore, other domestic or foreign companies, some with greater
experience in the optics industry and greater financial resources than the Company, may
seek to produce products or services that compete with those of the Company. The Company
uses production facilities overseas to produce key components for the Company&#146;s
business, such as lenses. The Company believes that the cost savings from such production
is essential to the Company&#146;s ability to compete on a price basis in the medical
products area particularly and to the Company&#146;s profitability generally. </FONT></P>

<P align="center"><font face="Times New Roman, Times, Serif" size="2">9</font></P>

  <hr STYLE="page-break-after:always" color="#000000" size="1">

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company believes that competition
for sales of its medical products and services, which have been principally sold to
Original Equipment Manufacturer (OEM) customers, is based on performance and other
technical features, as well as other factors, such as scheduling and reliability, in
addition to competitive price. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company believes that its future
success depends to a large degree on its ability to continue to conceive and to develop
new optical products and services to enhance the performance characteristics and methods
of manufacture of existing products. Accordingly, it expects to continue to seek to obtain
product-related design and development contracts with customers and to invest its own
funds on research and development, to the extent funds are available. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company relies, in part, upon
patents, trade secrets and proprietary knowledge as well as personnel policies and
employee confidentiality agreements concerning inventions and other creative efforts to
develop and to maintain its competitive position. The Company does not believe that its
business is dependent upon any particular patent, patent pending, or license, although it
believes that trade secrets and confidential know-how may be important to the
Company&#146;s scientific and commercial success. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company conducts its domestic
operations at two leased facilities in Gardner, Massachusetts. The Company rents office
space in Hong Kong for sales, marketing and supplier quality control and liaison
activities of its Hong Kong subsidiary. The Company believes these facilities are adequate
for its current operations and adequately covered by insurance. Significant increases in
production or the addition of significant equipment or manufacturing capabilities in
connection with the production for the Company&#146;s line of endoscopes, optical thin
films, and other products may, however, require the acquisition or lease of additional
facilities. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A014></A>
<P ALIGN=LEFT><u><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Critical Accounting
Policies and Estimates </FONT></u></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A015></A>
<P ALIGN=LEFT><i><FONT FACE="Times New Roman, Times, Serif" SIZE=2>General </FONT>
</i></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management&#146;s discussion and
analysis of financial condition and results of operations are based upon the
Company&#146;s consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America (&#147;U.S.
GAAP&#148;). The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses. The Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company believes the following
critical accounting policies affect its more significant judgments and estimates used in
the preparation of its consolidated financial statements. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=center><font face="Times New Roman, Times, Serif" size="2">10</font></P>

  <hr STYLE="page-break-after:always" color="#000000" size="1">
<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A NAME=A016></A>Revenue
  Recognition </FONT></i></FONT></P>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company recognizes revenue
  in accordance with U.S. GAAP and SEC Staff Accounting Bulletin (&#147;SAB&#148;)
  No. 101, <I>Revenue Recognition in Financial Statements. </I>SAB No. 101 requires
  that four basic criteria must be met before revenue can be recognized: (1) persuasive
  evidence of an arrangement exists; (2) delivery has occurred or services have
  been rendered; (3) the price to the buyer is fixed and determinable; and (4)
  collectibility is reasonably assured. Determination of criteria (3) and (4)
  are based on management&#146;s judgments regarding the fixed nature of the price
  to the buyer charged for products delivered or services rendered and collectibility
  of the sales price. The Company assesses credit worthiness of customers based
  upon prior history with the customer and assessment of financial condition.
  The Company&#146;s shipping terms are customarily FOB shipping point. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A017></A>
<P ALIGN=LEFT><i><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Bad Debt </FONT>
</i></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its customers to
make required payments. Allowances for doubtful accounts are established based upon review
of specific account balances and historical experience. If the financial condition of the
Company&#146;s customers were to deteriorate, resulting in an impairment of their ability
to make future payments, additional allowances may be required. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A018></A>
<P ALIGN=LEFT><i><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Inventories </FONT>
</i></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company provides for estimated
obsolescence on unmarketable inventory based upon assumptions about future demand and
market conditions. If actual demand and market conditions are less favorable than those
projected by management, additional inventory write downs may be required. Inventory, once
written down, is not subsequently written back up, as these adjustments are considered
permanent adjustments to the carrying value of the inventory. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of</I> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In accordance with Statement of
Financial Accounting Standards (&#147;SFAS&#148;) No. 144, <I>Accounting for the
Impairment or Disposal of Long-Lived Assets, </I>the Company assesses<I> </I>impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future net cash flows
expected to be generated by the asset. Estimating the future cash flows expected to be
generated by the asset is dependent upon significant judgments made by management. If such
assets are considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the assets.
The Company classifies assets to be sold as held for sale in the period in which all of
the following criteria are met: </FONT></P>

<P align="center"><font face="Times New Roman, Times, Serif" size="2">11</font></P>

  <hr STYLE="page-break-after:always" color="#000000" size="1">

<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 2" FSL="Default" -->
               <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=6%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
                    <TD WIDTH=91%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
                    Management, having the authority to approve the action, commits to a plan to
                    sell the asset.&nbsp; </FONT></P></TD>
                    </TR>
                    </TABLE>
                    <BR>

<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 2" FSL="Default" -->
               <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=6%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
                    <TD WIDTH=91%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
                    The asset is available for immediate sale in its present condition subject only
                    to terms that are usual and customary for sales of such assets. </FONT></P></TD>
                    </TR>
                    </TABLE>
                    <BR>

<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 2" FSL="Default" -->
               <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
                    <TR VALIGN=TOP>
                    <TD ALIGN=RIGHT WIDTH=6%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;c) </FONT></TD>
                    <TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
                    <TD WIDTH=91%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
                    An active program to locate a buyer and other actions required to complete the
                    plan to sell the asset have been initiated. </FONT></P></TD>
                    </TR>
                    </TABLE>
                    <BR>

<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 3" FSL="Default" -->
     <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
          <TR VALIGN=TOP>
          <TD ALIGN=RIGHT WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>d) </FONT></TD>
          <TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
          <TD WIDTH=88%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
          The sale of the asset is probable, and transfer of the asset is expected to
          qualify for recognition as a completed sale, generally within one year. </FONT></P></TD>
          </TR>
          </TABLE>
          <BR>

<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 3" FSL="Default" -->
     <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
          <TR VALIGN=TOP>
          <TD ALIGN=RIGHT WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>e) </FONT></TD>
          <TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
          <TD WIDTH=88%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
          The asset is being actively marketed for sale at a price that is reasonable in
          relation to its current fair value.&nbsp; </FONT></P></TD>
          </TR>
          </TABLE>
          <BR>

<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 3" FSL="Default" -->
     <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
          <TR VALIGN=TOP>
          <TD ALIGN=RIGHT WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>f) </FONT></TD>
          <TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
          <TD WIDTH=88%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
          Actions required to complete the plan indicate that it is unlikely that
          significant changes to the plan will be made or that the plan will be withdrawn. </FONT></P></TD>
          </TR>
          </TABLE>
          <BR>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assets classified as held for sale
are carried at the lower of cost or fair value less cost to sell and the asset is no
longer depreciated. When determining the fair value, management considers the condition of
the assets and pertinent market conditions. When considered necessary, management will
engage third party valuation experts to assist in the determination of fair value. At each
balance sheet date, management makes an assessment of the assets&#146; fair value and
whether the assets continue to meet the criteria to be classified as held for sale. </FONT>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A019></A>
<P ALIGN=LEFT><u><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Results of Operations </FONT>
</u></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
revenues for the quarter and six months ended December 31, 2003 decreased by $362,875, or
61.5%, and $266,512, or 23.5%, respectively, from the same periods in the prior year.
Revenues for the quarter decreased 64.4% sequentially from the preceding quarter. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
decrease in revenues for the quarter was due primarily to lower sales of medical products
(down by approximately $357,000, or 64%). Sales of medical products were lower due
primarily to lower shipments of stereo endoscope products. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
revenue decrease from the prior year for the six months ended December 31, 2003 was due to
lower sales of medical products (down by approximately $257,000, or 24%). Medical sales
were lower due primarily to lower shipments of stereo endoscope products, partially offset
by shipments to a new customer (in the quarter ended September 30, 2003) of specialty
endoscopes used for cardiac surgical applications. </FONT></P>

<P align="center"><font face="Times New Roman, Times, Serif" size="2">12</font></P>

  <hr STYLE="page-break-after:always" color="#000000" size="1">

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues
from the Company&#146;s largest customers, as a percentage of total revenues for the six
months ended December 31, 2003 and 2002, were as follows: </FONT></P>


<div align="center">
  <center>


    <TABLE WIDTH=80% BORDER=0 CELLPADDING=0 CELLSPACING=0 bordercolor="#111111" style="border-collapse: collapse">
      <TR VALIGN=Bottom>
        <TD width="100%" ALIGN=LEFT>&nbsp;</TD>
        <TD ALIGN=LEFT>&nbsp;</TD>
        <TD colspan="2" ALIGN=RIGHT><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2003</FONT></b></TD>
        <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD colspan="2" ALIGN=RIGHT><b><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2002</FONT></b></TD>
      </TR>
      <TR VALIGN=Bottom>
        <TD width="100%" ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Customer
          A</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>36</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=RIGHT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
        <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
      </TR>
      <TR VALIGN=Bottom>
        <TD width="100%" ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Customer
          B</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
      </TR>
      <TR VALIGN=Bottom>
        <TD width="100%" ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Customer
          C</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
      </TR>
      <TR VALIGN=Bottom>
        <TD width="100%" ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Customer
          D</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#151;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>36</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
      </TR>
      <TR VALIGN=Bottom>
        <TD width="100%" ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>All
          Others</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>46</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>38</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
      </TR>
      <TR VALIGN=Bottom>
        <TD width="100%" ALIGN=LEFT>&nbsp;</TD>
        <TD ALIGN=LEFT>&nbsp;</TD>
        <TD ALIGN=RIGHT><hr size="1" noshade></TD>
        <TD ALIGN=LEFT>&nbsp;</TD>
        <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=RIGHT><hr size="1" noshade></TD>
        <TD ALIGN=LEFT>&nbsp;</TD>
      </TR>
      <TR VALIGN=Bottom>
        <TD width="100%" ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
        <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
      </TR>
      <TR VALIGN=Bottom>
        <TD ALIGN=LEFT>&nbsp;</TD>
        <TD ALIGN=LEFT>&nbsp;</TD>
        <TD ALIGN=RIGHT><hr size="2" noshade></TD>
        <TD ALIGN=LEFT>&nbsp;</TD>
        <TD ALIGN=RIGHT>&nbsp;</TD>
        <TD ALIGN=RIGHT><hr size="2" noshade></TD>
        <TD ALIGN=LEFT>&nbsp;</TD>
      </TR>
    </TABLE>

  </center>
</div>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
other customer accounted for more than 10% of the Company&#146;s revenues during those
periods. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December 31, 2003, receivables from the Company&#146;s three largest customers were
approximately 35%, 13% and 13%, respectively, of the total accounts receivable. At June
30, 2003, receivables from the Company&#146;s largest customer were approximately 55% of
the total accounts receivable. No other customer accounted for more than 10% of the
Company&#146;s receivables as of December 31, 2003 and June 30, 2003. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross
profit (loss) for the quarter and six months ended December 31, 2003 reflected an
unfavorable change of approximately $344,000 and $302,000, respectively, compared to the
quarter and six months ended December 31, 2002. Gross profit as a percentage of revenues
decreased from 18.6% in the quarter ended December 31, 2002 to a negative 103.4% in the
quarter ended December 31, 2003, and decreased from 10.6% in the six months ended December
31, 2002 to a negative 21.0% in the six months ended December 31, 2003. The unfavorable
change in gross profit was due primarily to lower overall sales volume, partially offset
by a lower manufacturing cost structure resulting from restructuring measures implemented
in fiscal year 2003. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
and development expenses decreased by approximately $5,000, or 1%, for the quarter ended
December 31, 2003, and by approximately $48,000, or 7.4%, for the six months ended
December 31, 2003 compared to the corresponding periods of the prior year. The decrease
was due to a slightly lower level of resources being devoted to product development
activities. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling,
general and administrative expenses increased by approximately $23,000, or 5.4%, for the
quarter ended December 31, 2003, but decreased by approximately $50,000, or 5.3%, for the
six months ended December 31, 2003 compared to the corresponding periods of the prior
year. The increase for the quarter is due primarily to higher sales proposal expenses. The
year to date decrease is due primarily to lower outside consulting and legal expenses. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
provision for asset impairment and restructuring of $53,131 in the quarter and six months
ended December 31, 2002, consists of a provision for severance benefits paid in the
quarter ended December 31, 2002 related to the October 2002 workforce reduction of 16%, or
six employees. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
expense relates primarily to capital lease obligations. </FONT></P>

<P align="center"><font face="Times New Roman, Times, Serif" size="2">13</font></P>

  <hr STYLE="page-break-after:always" color="#000000" size="1">

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income
decreased by approximately $13,000 for the quarter and by $27,000 for the six months ended
December 31, 2003 compared to the corresponding periods of the prior year due to the lower
base of cash and cash equivalents and to lower interest rates. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
loss on sale of assets held for sale of $14,602 and $20,041 in the quarter and six months
ended December 31, 2002, respectively, represents the loss on the sales of a portion of
the property and equipment held for sale, which formerly was invested in the
Company&#146;s telecommunications product line. The Company received net proceeds from
these sales of approximately $550,000 in the six months ended December 31, 2002. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
income tax provision was recorded in the first or second quarters of fiscal year 2004 or
2003 because of the losses generated in those periods. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A020></A>
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>Liquidity and Capital
Resources</u> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the six months ended
  December 31, 2003, the Company&#146;s cash and cash equivalents decreased by
  approximately $1,778,000 to $1,726,000. The decrease in cash and cash equivalents
  was due to cash used by operating activities of approximately $1,719,000, capital
  expenditures of approximately $31,000, repayment of debt of approximately $4,000,
  and an increase in patent costs of approximately $24,000. Cash used by operating
  activities consisted of the net loss of approximately $1,655,000 and an increase
  in prepaid expenses of approximately $124,000, partially offset by other net
  changes in balance sheet items totaling approximately $60,000. </FONT></P>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company&#146;s working
  capital was approximately $7,418,000, $4,663,000 and $4,034,000 at June 30,
  2002, June 30, 2003, and September 30, 2003, respectively, and decreased further
  to approximately $2,902,000 at December 31, 2003. This trend is primarily the
  result of losses generated due to the loss of business from a major stereo endoscope
  customer. The prospects for future sales to this customer remains uncertain.
  Additionally, sales in the quarter ended December 31, 2003 were adversely affected
  by customer delays in the introduction of a new system used in cardiac surgical
  applications which employs a specialty endoscope developed by the Company. Despite
  these delays, the Company anticipates follow-on orders from this customer. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Contractual cash commitments for the
fiscal years subsequent to December 31, 2003 are summarized as follows: </FONT></P>

<div align="center">
  <center>
  <table cellSpacing="0" cellPadding="0" width="600" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td vAlign="after" align="left" width="10%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
        <font style="display: inline; color: #800080; font-family: 'Times New Roman', serif" size="2">
        &nbsp;</font><font size="2"> </font>
        <font style="display: inline; color: #800080; font-family: 'Times New Roman', serif" size="2">
        &nbsp;</font><font size="2"> </font>
      </div>
      </td>
      <td vAlign="after" align="middle" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
&nbsp;</div>
      </td>
      <td vAlign="after" align="middle" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif; font-weight: 700" size="2">
        2004 </font>
      </div>
      </td>
      <td vAlign="after" align="middle" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
&nbsp;</div>
      </td>
      <td vAlign="after" align="middle" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif; font-weight: 700" size="2">
        2005 </font>
      </div>
      </td>
      <td vAlign="after" align="middle" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
&nbsp;</div>
      </td>
      <td vAlign="after" align="middle" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif; font-weight: 700" size="2">
        Thereafter </font>
      </div>
      </td>
      <td vAlign="after" align="middle" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
&nbsp;</div>
      </td>
      <td vAlign="after" align="middle" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif; font-weight: 700" size="2">
        Total </font>
      </div>
      </td>
    </tr>
    <tr>
      <td align="left" width="10%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="right" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <hr noShade color="#000000" size="1">
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="right" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <hr noShade color="#000000" size="1">
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="right" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <hr noShade color="#000000" size="1">
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="right" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <hr noShade color="#000000" size="1">
      </div>
      </td>
    </tr>
    <tr>
      <td align="left" width="10%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        Operating&nbsp;leases</font><font size="2"> </font>
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="left" width="3%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        $</font><font size="2"> </font>
      </div>
      </td>
      <td align="right" width="9%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        25,955</font><font size="2"> </font>
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="left" width="3%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        $</font><font size="2"> </font>
      </div>
      </td>
      <td align="right" width="9%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        3,383</font><font size="2"> </font>
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="left" width="3%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        $</font><font size="2"> </font>
      </div>
      </td>
      <td align="right" width="9%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        &#151;</font><font size="2"> </font>
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="left" width="3%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        $</font><font size="2"> </font>
      </div>
      </td>
      <td align="right" width="9%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        29,338</font><font size="2"> </font>
      </div>
      </td>
    </tr>
    <tr>
      <td align="left" width="10%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="right" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <hr noShade color="#000000" size="1">
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="right" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <hr noShade color="#000000" size="1">
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="right" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <hr noShade color="#000000" size="1">
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="right" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <hr noShade color="#000000" size="1">
      </div>
      </td>
    </tr>
    <tr>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="left" width="9%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        Total</font><font size="2"> </font>
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="left" width="3%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        $</font><font size="2"> </font>
      </div>
      </td>
      <td align="right" width="9%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        25,955</font><font size="2"> </font>
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="left" width="3%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        $</font><font size="2"> </font>
      </div>
      </td>
      <td align="right" width="9%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        3,383</font><font size="2"> </font>
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="left" width="3%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        $</font><font size="2"> </font>
      </div>
      </td>
      <td align="right" width="9%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        &#151;</font><font size="2"> </font>
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="left" width="3%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        $</font><font size="2"> </font>
      </div>
      </td>
      <td align="right" width="9%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
        29,338</font><font size="2"> </font>
      </div>
      </td>
    </tr>
    <tr>
      <td align="left" width="10%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="right" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <hr noShade color="#000000">
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="right" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <hr color="#000000">
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="right" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <hr noShade color="#000000">
      </div>
      </td>
      <td align="left" width="1%">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
      </td>
      <td align="right" width="12%" colSpan="2">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
        <hr noShade color="#000000">
      </div>
      </td>
    </tr>
  </table>
  </center>
</div>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the quarter ended December 31,
2003, the Company paid the final installment on its capital lease obligation. For the six
months ended December 31, 2003, payments on capital lease obligations totaled
approximately $3,900. For the year ended June 30, 2003 and 2002, payments on capital lease
obligations totaled approximately $33,000 and $44,000, respectively. </FONT></P>

<P align="center"><font face="Times New Roman, Times, Serif" size="2">14</font></P>

  <hr STYLE="page-break-after:always" color="#000000" size="1">

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As a cost saving measure, during the
quarter ended December 31, 2003, the Company redeployed $21,400 of assets held for sale
and invested an additional $6,300, largely to refurbish certain equipment used to produce
optical thin films for its medical instrument product line. This refurbishment is expected
to result in reduced operating supplies totaling approximately $35,000 per year. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company provides a standard
one-year warranty on materials and workmanship to its customers. The Company provides for
estimated warranty costs at the time product revenue is recognized. Warranty costs are
included as a component of cost of goods sold in the accompanying consolidated statements
of operations. For the six month periods ended December 31, 2003 and 2002, warranty costs
were not significant. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company intends to continue
devoting resources to internally funded research and development spending on both new
products and the improvement of existing products. The Company also intends to devote
resources to the marketing and product support of its medical instrument product line and
medical instruments related optical thin films. These investments may temporarily result
in negative cash flow, but the Company anticipates that the result of these efforts will
translate into increased revenues. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company&#146;s current sources of
liquidity consist of its cash and cash equivalents and accounts receivable. If these
liquidity sources, along with revenues from operations, are not sufficient to fund
operations or growth, the Company will require additional financing. The timing and amount
of additional financing requirements depend on a number of factors, including the status
of development and commercialization efforts, the cost of equipment and personnel to
support manufacturing of new and existing products, and the amount of working capital
necessary to maintain operations supporting new products. The Company is currently
reviewing alternatives for raising additional funds through public or private equity or
debt financing. There can be no assurance that such funds will be available on
satisfactory terms, if at all. Lack of necessary funds may require the Company to delay,
scale back or eliminate some or all of its development efforts. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company believes that the recent
introduction of several new products, along with new and on-going customer relationships,
will generate additional revenues, which are required in order for the Company to achieve
profitability; however, there can be no assurance that we will generate additional
revenues. If these additional revenues are not generated on a timely basis, the Company
will be required, and is prepared, to implement further cost reduction measures, as
necessary. The Company believes, based on its operating and strategic plans, that it will
have sufficient funds to conduct operations through at least the current fiscal year. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A021></A>
<P ALIGN=LEFT><u><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Recent Accounting
Pronouncements </FONT></u></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In January 2003, the Financial
Accounting Standards Board (&#147;FASB&#148;) issued Interpretation No. 46,
<I>Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.</I> This
interpretation addresses the consolidation by business enterprises of variable interest
entities as defined in the Interpretation. The Interpretation applies immediately to
variable interests in variable interest entities created after January 31, 2003, and to
variable interests in variable interest entities obtained after January 31, 2003. For
public enterprises with a variable interest in a variable interest entity created before
February 1, 2003, the Interpretation applies to that enterprise no later than the
beginning of the first interim or annual reporting period beginning after June 15, 2003.
The application of this Interpretation did not have a material impact on the
Company&#146;s consolidated results of operations or financial position. </FONT></P>

<P align="center"><font face="Times New Roman, Times, Serif" size="2">15</font></P>

  <hr STYLE="page-break-after:always" color="#000000" size="1">

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In November, 2002, the Emerging
Issues Task Force (&#147;EITF&#148;) reached a consensus on Issue No. 00-21, <I>Revenue
Arrangements with Multiple Deliverables</I>. EITF Issue No. 00-21 addresses the
accounting, by a vendor, for contractual arrangements in which multiple revenue-generating
activities will be performed by the vendor. The Issue addresses when and, if so, how an
arrangement involving multiple deliverables should be divided into separate units of
accounting. The Issue also addresses how the arrangement consideration should be measured
and allocated to the separate units of accounting in the arrangement. This Issue otherwise
does not change applicable revenue recognition criteria. The Company adopted the
provisions of EITF No. 00-21 to new arrangements initiated after July 1, 2003, without a
material impact on the Company&#146;s consolidated results of operations or financial
position. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A022></A>
<P ALIGN=LEFT><u><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Trends and Uncertainties
That May Affect Future Results </FONT></u></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the quarter ended December 31,
2003, cash and cash equivalents decreased by approximately $1,024,000 compared to a
decrease of approximately $754,000 for the previous quarter ended September 30, 2003. Cash
disbursements during the quarter ended December 31, 2003, included approximately $330,000
for certain payments occurring only during the second quarter each year, such as annual
insurance premiums and costs associated with preparation of annual reports and shareholder
proxy materials. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Capital equipment expenditures during
the six months ended December 31, 2003 were approximately $32,000, up 95% from the same
period in 2002. Future capital expenditures will depend on future sales and the success of
ongoing research and development efforts. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the quarter ended December 31,
2003, research and development expenses were approximately $334,000, down 1% from $339,000
for the quarter ended December 31, 2002. Quarterly research and development expenses are
expected to remain at this level for the foreseeable future, but will ultimately depend on
the Company&#146;s assessment of new product opportunities. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company expects its recent
  pattern of quarter-to-quarter revenue fluctuations to continue, due to the uncertain
  timing of orders from customers and their size in relation to total revenues.
  The Company continues to move forward with new products and technical innovations,
  in particular, the development of a new generation (patent pending) of its world-class
  product line of 3-D endoscopes, the development of a new prototype 2.7 mm endoscope,
  and new instruments utilizing the Company&#146;s new micro-precision<SUP>TM</SUP>
  lens technology (patent pending) for endoscopes under 1 mm. </FONT></P>

<P align="center"><font face="Times New Roman, Times, Serif" size="2">16</font></P>

  <hr STYLE="page-break-after:always" color="#000000" size="1">

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A023></A>
<P ALIGN=LEFT><u><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 3 </FONT>
</u></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<A NAME=A024></A>
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Controls and Procedures </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company&#146;s Chief Executive
Officer and Chief Financial Officer have conducted an evaluation of the Company&#146;s
disclosure controls and procedures as of December 31, 2003. Based on their evaluation, the
Company&#146;s Chief Executive Officer and Chief Financial Officer have concluded that the
Company&#146;s disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the applicable Securities and Exchange Commission rules and
forms. There were no significant changes in the Company&#146;s internal controls or in
other factors that could significantly affect these controls subsequent to the date of the
most recent evaluation of these controls by the Company&#146;s Chief Executive Officer and
Chief Financial Officer, including any corrective actions with regard to significant
deficiencies and material weaknesses. </FONT></P>

<P align="center"><font face="Times New Roman, Times, Serif" size="2">17</font></P>

  <hr STYLE="page-break-after:always" color="#000000" size="1">

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<A NAME=A025></A>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 14.8pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font style="display: inline; font-weight: bold; color: #000000; font-family: 'Times New Roman', serif" size="2">
  PART II.</font><font style="display: inline; color: #000000; letter-spacing: 28pt" size="2">&nbsp;</font><font style="display: inline; font-weight: bold; color: #000000; font-family: 'Times New Roman', serif" size="2">OTHER
  INFORMATION</font><font size="2"> </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 9.1pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <br>
&nbsp;</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 12.5pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="AutoNumber1">
    <tr>
      <td width="5%" valign="top" nowrap>
      <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif; text-decoration: underline" size="2">
      Items 1-3</font></td>
      <td width="50%" valign="top">
      <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
      Not Applicable.</font></td>
    </tr>
    <tr>
      <td width="5%" valign="top" nowrap>&nbsp;</td>
      <td width="50%" valign="top">&nbsp;</td>
    </tr>
    <tr>
      <td width="5%" valign="top" nowrap>
      <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif; text-decoration: underline" size="2">
      Item 4</font><font style="display: inline; color: #000000; letter-spacing: 64pt" size="2" face="Times New Roman, serif">&nbsp;
      </font></td>
      <td width="50%" valign="top">
      <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
      Submission of Matters to a Vote of Security Holders </font></td>
    </tr>
    <tr>
      <td width="5%" valign="top" nowrap>&nbsp;</td>
      <td width="50%" valign="top">
      <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
      At the Annual Meeting of Shareholders of the Company held on November 11,
      2003, 1,507,589 (or 86%) of the 1,752,052 then-outstanding shares of the
      common stock of the Company were present and voted by proxy. Richard E.
      Forkey was reelected as a Class I Director of the Company, by a vote of
      1,445,650 shares for, 0 shares against and 61,939 shares withheld. Edward
      A. Benjamin was reelected as a Class I Director of the Company, by a vote
      of 1,448,160 shares for, 0 shares against and 59,429 shares withheld. The
      shareholders also approved a proposal to approve an amended and restated
      1997 Incentive Plan of the Company by a vote of 422,091 shares for, 89,646
      shares against, and 3,791 shares abstaining.</font><font size="2" face="Times New Roman, serif">&nbsp;
      </font></td>
    </tr>
    <tr>
      <td width="5%" valign="top" nowrap>&nbsp;</td>
      <td width="50%" valign="top">&nbsp;</td>
    </tr>
    <tr>
      <td width="5%" valign="top" nowrap>
      <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif; text-decoration: underline" size="2">
      Item&nbsp;5</font><font id="TAB3" style="COLOR: black; LETTER-SPACING: 64pt" size="2" face="Times New Roman, serif">&nbsp;</font></td>
      <td width="50%" valign="top">
      <font style="display: inline; color: #000000; font-family: 'Times New Roman', serif" size="2">
      Other Information</font></td>
    </tr>
    <tr>
      <td width="5%" valign="top" nowrap>&nbsp;</td>
      <td width="50%" valign="top">&nbsp;</td>
    </tr>
    <tr>
      <td width="5%" valign="top" nowrap>&nbsp;</td>
      <td width="50%" valign="top">
      <font style="display: inline; font-family: 'Times New Roman', serif" size="2">
      As previously announced, Dr. Joseph N. Forkey was appointed Chief
      Scientist of the Company in September 2003. Dr. Forkey&#146;s appointment is
      expected to provide the company significant additional capabilities in
      optical instrument development, in management of new technology and in
      potentially significant longer-term initiatives in Biophysics and
      Biomedical instrumentation, as well as new photonics-based market
      opportunities.</font><font size="2" face="Times New Roman, serif">&nbsp; </font>
      </td>
    </tr>
    <tr>
      <td width="5%" height="21" valign="top" nowrap>&nbsp;</td>
      <td width="50%" valign="top">&nbsp;</td>
    </tr>
    <tr>
      <td width="5%" valign="top" nowrap>&nbsp;</td>
      <td width="50%" valign="top">
      <font style="display: inline; font-family: 'Times New Roman', serif" size="2">
      An article co-authored by Dr. Forkey was included in the list of the 10
      most important scientific breakthroughs of the year 2003 by the journal
      </font>
      <font style="display: inline; font-family: 'Times New Roman', serif; text-decoration: underline" size="2">
      Science </font>
      <font style="display: inline; font-family: 'Times New Roman', serif" size="2">
      (Vol. 302, p. 2039). The work was authored by a collaboration of
      scientists including Dr. Forkey while he was a Research Scientist at the
      University of Pennsylvania Medical School. The Research Article entitled
      &#147;Myosin V Walks Hand-over-Hand: Single Fluorophore Imaging with 1.5
      nanometer Localization&#148; was originally published in </font>
      <font style="display: inline; font-family: 'Times New Roman', serif; text-decoration: underline" size="2">
      Science</font><font size="2" face="Times New Roman, serif">&nbsp; </font>
      <font style="display: inline; font-family: 'Times New Roman', serif" size="2">
      in June 2003 (Vol. 300, p.2061) and described the development of a new
      optical microscope for measuring the location of individual fluorescent
      molecules with unprecedented accuracy. The paper also described the use of
      this technique to observe the motion of specific parts of individual
      protein molecules revealing previously unobserved structural changes in
      the protein. </font>
      <font style="display: inline; font-family: 'Times New Roman', serif; text-decoration: underline" size="2">
      Science</font><font size="2" face="Times New Roman, serif">&nbsp; </font>
      <font style="display: inline; font-family: 'Times New Roman', serif" size="2">
      is the weekly publication of the American Association for the Advancement
      of Science. </font></td>
    </tr>
    <tr>
      <td width="5%" valign="top" nowrap>&nbsp;</td>
      <td width="50%" valign="top">&nbsp;</td>
    </tr>
    <tr>
      <td width="5%" valign="top" nowrap>&nbsp;</td>
      <td width="50%" valign="top">
      <font style="display: inline; font-family: 'Times New Roman', serif" size="2">
      Dr. Forkey, in his capacity as Chief Scientist, expects to continue to
      explore the development and application of optical-based microscopic
      single-molecule technologies. </font></td>
    </tr>
  </table>
</div>
<p align="center"><font size="2">18</font></p>
  <hr STYLE="page-break-after:always" color="#000000" size="1">

<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 9.1pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font size="2">Item 6&nbsp; &nbsp;&nbsp;</font><font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">Exhibits
  and Reports on Form 8-K</font><font size="2"> </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 9.1pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  &nbsp;</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 9.1pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <blockquote>
  <font size="2">(a)&nbsp; </font>
  <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  Exhibits&#150;<br>
&nbsp;</font></blockquote>
</div>
  <blockquote>
  <font size="2">Exhibit 31.1&#150;Certification of the Company&#146;s Chief Executive Officer required
  by Rule 13a-14(a)/15d-14(a).</font></blockquote>
</div>
  <blockquote>
  <font size="2">Exhibit 31.2&#150;Certification of the Company&#146;s Chief Financial Officer required
  by Rule 13a-14(a)/15d-14(a). </font>
  </blockquote>
</div>

  <blockquote>

<font size="2">Exhibit 32.1&#150;Certifications of the Company&#146;s Chief Executive Officer and
  Chief Financial Officer required by Rule 13a-14(b) and 18 U.S.C. 1350.</font></p>
  </blockquote>
</blockquote>
</div>
  <blockquote>
  <font size="2">(b)&nbsp; </font>
  <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  Reports on Form 8-K&#150;The Company filed one Current Report on Form 8-K during
  the quarter ended December 31, 2003 as follows: On November 13, 2003, the
  Company reported a press release issued on November 10, 2003, reporting its
  operating results for the quarter ended September 30, 2003. </font>
  <font size="2">
</div>
  </font>
</blockquote>
<div style="DISPLAY: block; MARGIN-LEFT: 126pt; TEXT-INDENT: -126pt; LINE-HEIGHT: 9.1pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font size="2">
  <br>
&nbsp;</font></div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 12.5pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif" size="2">
  In accordance with the requirements of the Securities Exchange Act of 1934,
  the registrant has duly caused this report to be signed on its behalf by the
  undersigned thereunto duly authorized.</font><font size="2"> </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 12.5pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  &nbsp;</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 12.5pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <table cellSpacing="0" cellPadding="0" width="100%" align="center" bgColor="#ffffff" border="0">
    <tr vAlign="top" bgColor="#ffffff">
      <td width="50%"><font face="Times New Roman, serif" size="2">&nbsp;</font></td>
      <td width="1%"><font face="Times New Roman, serif" size="2">&nbsp;</font></td>
      <td width="49%"><font face="Times New Roman, serif" size="2">&nbsp;</font></td>
    </tr>
    <tr vAlign="top" bgColor="#ffffff">
      <td><font face="Times New Roman, serif" size="2">&nbsp;</font></td>
      <td colSpan="2"><font size="2" face="Times New Roman, serif"><strong>
      PRECISION OPTICS CORPORATION, INC.</strong></font></td>
    </tr>
    <tr vAlign="top" bgColor="#ffffff">
      <td><font face="Times New Roman, serif" size="2">&nbsp;<br>
      &nbsp;</font></td>
      <td><font face="Times New Roman, serif" size="2"><br>
      &nbsp;</font></td>
      <td><font face="Times New Roman, serif" size="2">&nbsp;<br>
      &nbsp;</font></td>
    </tr>
    <tr vAlign="top" bgColor="#ffffff">
      <td><font face="Times New Roman, serif" size="2">Date:&nbsp;February
      11, 2004</font></td>
      <td><font face="Times New Roman, serif" size="2">By:&nbsp;&nbsp;</font></td>
      <td><font face="Times New Roman, serif" size="2">/s/&nbsp;JACK P. DREIMILLER</font></td>
    </tr>
    <tr vAlign="top" bgColor="#ffffff">
      <td colSpan="2"><font face="Times New Roman, serif" size="2">&nbsp;</font></td>
      <td><hr SIZE="1">
      <p><font size="2">Jack P. Dreimiller</font></td>
    </tr>
    <tr vAlign="top" bgColor="#ffffff">
      <td colSpan="2"><font face="Times New Roman, serif" size="2">&nbsp;</font></td>
      <td><font face="Times New Roman, serif" size="2">
      <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      Senior Vice President, Finance,</font>
      <font style="DISPLAY: inline; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      Chief Financial Officer and Clerk</font> </font></td>
    </tr>
  </table>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 126pt; TEXT-INDENT: -126pt; LINE-HEIGHT: 12.5pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="justify">
  <p align="center">&nbsp;</div>
<p align="center"><font size="2">19</font></p>


</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>3
<FILENAME>ex31_1.htm
<TEXT>
<html>

<head>
<title>Exhibit 31</title>
</head>

<body>

<div style="display: block; text-indent: 0pt; line-height: 12.5pt; white-space: pre; margin-left: 0pt; margin-right: 25.6pt" align="center">
  <p align="right">
  <font style="display: inline; font-weight: bold; color: #000000; font-family: 'Times New Roman', serif; text-decoration: underline" size="2">
  Exhibit 31.1</font><font size="2"> </font>
</div>
<div style="display: block; text-indent: 0pt; line-height: 12.5pt; white-space: pre; margin-left: 0pt; margin-right: 25.6pt" align="center">
  <font size="2"><br>
&nbsp;</font></div>
<div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="center">
  <font style="display: inline; font-weight: bold; font-size: 10pt; color: #000000; font-family: ms sans serif; text-decoration: underline">
  Certification of Chief Executive Officer Required by Rule 13a-14(a)/15d-14(a)
  </font>
</div>
<div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
  <font style="display: inline; font-size: 10pt; font-family: 'Times New Roman', serif">
  <br>
  I, Richard E. Forkey, certify that: <br>
&nbsp;</font></div>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="5%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="right">
      <font style="display: inline; font-size: 10pt; color: #800080; font-family: 'Times New Roman', serif">
      1. </font>
    </div>
    </td>
    <td align="left" width="2%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; color: #800080; font-family: 'Times New Roman', serif">
      &nbsp; </font>
    </div>
    </td>
    <td align="left" width="71%" colSpan="2">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; font-family: 'Times New Roman', serif">
      I have reviewed this Quarterly Report on Form 10-QSB of Precision Optics
      Corporation, Inc.; </font>
    </div>
    </td>
  </tr>
  <tr>
    <td align="right" width="5%">&nbsp;</td>
    <td align="left" width="2%">&nbsp;</td>
    <td align="left" width="71%" colSpan="2">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="5%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="right">
      <font style="display: inline; font-size: 10pt; color: #800080; font-family: 'Times New Roman', serif">
      2. </font>
    </div>
    </td>
    <td align="left" width="2%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; color: #800080; font-family: 'Times New Roman', serif">
      &nbsp; </font>
    </div>
    </td>
    <td align="left" width="71%" colSpan="2">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; font-family: 'Times New Roman', serif">
      Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report; </font>
    </div>
    </td>
  </tr>
  <tr>
    <td align="right" width="5%">&nbsp;</td>
    <td align="left" width="2%">&nbsp;</td>
    <td align="left" width="71%" colSpan="2">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="5%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="right">
      <font style="display: inline; font-size: 10pt; color: #800080; font-family: 'Times New Roman', serif">
      3. </font>
    </div>
    </td>
    <td align="left" width="2%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; color: #800080; font-family: 'Times New Roman', serif">
      &nbsp; </font>
    </div>
    </td>
    <td align="left" width="71%" colSpan="2">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; font-family: 'Times New Roman', serif">
      Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the small business issuer as of, and for, the periods presented in this
      report; </font>
    </div>
    </td>
  </tr>
  <tr>
    <td align="right" width="5%">&nbsp;</td>
    <td align="left" width="2%">&nbsp;</td>
    <td align="left" width="71%" colSpan="2">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="5%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="right">
      <font style="display: inline; font-size: 10pt; color: #800080; font-family: 'Times New Roman', serif">
      4. </font>
    </div>
    </td>
    <td align="left" width="2%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; color: #800080; font-family: 'Times New Roman', serif">
      &nbsp; </font>
    </div>
    </td>
    <td align="left" width="71%" colSpan="2">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; font-family: 'Times New Roman', serif">
      The small business issuer&#146;s other certifying officer(s) and I are
      responsible for establishing and maintaining disclosure controls and
      procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
      the small business issuer and have: </font>
    </div>
    </td>
  </tr>
  <tr>
    <td align="right" width="9%" colSpan="3">&nbsp;</td>
    <td align="left" width="68%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="9%" colSpan="3">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="right">
&nbsp;</div>
    </td>
    <td align="left" width="68%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; color: #000000; font-family: 'Times New Roman', serif">
      (a) Designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the small business issuer,
      including its consolidated subsidiaries, is made known to us by others
      within those entities, particularly during the period in which this report
      is being prepared; </font>
    </div>
    </td>
  </tr>
  <tr>
    <td align="right" width="9%" colSpan="3">&nbsp;</td>
    <td align="left" width="68%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="9%" colSpan="3">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="right">
&nbsp;</div>
    </td>
    <td align="left" width="68%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; color: #000000; font-family: 'Times New Roman', serif">
      (b)&nbsp;Evaluated the effectiveness of the small business issuer&#146;s disclosure
      controls and procedures and presented in this report our conclusions about
      the effectiveness of the disclosure controls and procedures, as of the end
      of the period covered by this report based on such evaluation; and </font>
    </div>
    </td>
  </tr>
  <tr>
    <td align="right" width="9%" colSpan="3">&nbsp;</td>
    <td align="left" width="68%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="9%" colSpan="3">
    <div style="display: block; text-indent: 0pt; line-height: 13.65pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="right">
&nbsp;</div>
    </td>
    <td align="left" width="68%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; color: #000000; font-family: 'Times New Roman', serif">
      (c)&nbsp;Disclosed in this report any change in the small business issuer&#146;s
      internal control over financial reporting that occurred during the small
      business issuer&#146;s most recent fiscal quarter (the small business issuer&#146;s
      fourth fiscal quarter in the case of an annual report) that has materially
      affected, or is reasonably likely to materially affect, the small business
      issuer&#146;s internal control over financial reporting; and </font>
    </div>
    </td>
  </tr>
  <tr>
    <td align="right" width="5%">&nbsp;</td>
    <td align="left" width="2%">&nbsp;</td>
    <td align="left" width="71%" colSpan="2">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="5%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="right">
      <font style="display: inline; font-size: 10pt; color: #000000; font-family: 'Times New Roman', serif">
      5. </font>
    </div>
    </td>
    <td align="left" width="2%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; color: #000000; font-family: 'Times New Roman', serif">
      &nbsp; </font>
    </div>
    </td>
    <td align="left" width="71%" colSpan="2">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; font-family: 'Times New Roman', serif">
      The small business issuer&#146;s other certifying officer(s) and I have
      disclosed, based on our most recent evaluation of internal control over
      financial reporting, to the small business issuer&#146;s auditors and the audit
      committee of the small business issuer&#146;s board of directors (or persons
      performing the equivalent functions): </font>
    </div>
    </td>
  </tr>
  <tr>
    <td align="right" width="9%" colSpan="3">&nbsp;</td>
    <td align="left" width="68%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="9%" colSpan="3">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="right">
&nbsp;</div>
    </td>
    <td align="left" width="68%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; color: #000000; font-family: 'Times New Roman', serif">
      (a) All significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the small business issuer&#146;s ability
      to record, process, summarize and report financial information; and </font>
    </div>
    </td>
  </tr>
  <tr>
    <td align="right" width="9%" colSpan="3">&nbsp;</td>
    <td align="left" width="68%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="9%" colSpan="3">
    <div style="display: block; text-indent: 0pt; line-height: 13.65pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="right">
&nbsp;</div>
    </td>
    <td align="left" width="68%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; color: #000000; font-family: 'Times New Roman', serif">
      (b)&nbsp;Any fraud, whether or not material, that involves management or other
      employees who have a significant role in the small business issuer&#146;s
      internal control over financial reporting. </font>
    </div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="left" width="54%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; color: #000000; font-family: 'Times New Roman', serif">
      Date: February 11, 2004</font>
    </div>
    </td>
    <td align="left" width="24%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
&nbsp;</div>
    </td>
  </tr>
  <tr>
    <td align="left" width="54%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; margin-left: 0pt; margin-right: 0pt" align="left">
&nbsp;</div>
    </td>
    <td align="left" width="24%">
    <div style="display: block; text-indent: 0pt; line-height: 11.35pt; white-space: pre; width: 386; height: 15; margin-left: 0pt; margin-right: 0pt" align="left">
      <font style="display: inline; font-size: 10pt; font-family: 'Times New Roman', serif">
      /s/&nbsp;&nbsp;RICHARD E. FORKEY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font>
    </div>
    </td>
  </tr>
  <tr>
    <td vAlign="top" width="54%">&nbsp;</td>
    <td vAlign="top" width="24%"><hr width="100%" noShade SIZE="2">
    <font style="display: inline; font-size: 10pt; font-family: 'Times New Roman', serif">
    Richard E. Forkey</font>
    <font style="display: inline; font-size: 10pt; font-family: 'Times New Roman', serif">
    <br>
    Chief Executive Officer</font> </td>
  </tr>
</table>

</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>4
<FILENAME>ex31_2.htm
<TEXT>
<html>

<head>
<title>Exhibit 31</title>
</head>

<body>

<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 12.5pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
  <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman, serif; TEXT-DECORATION: underline">
  Exhibit 31.2 </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: ms sans serif; TEXT-DECORATION: underline">
  Certification of Chief Financial Officer Required by Rule 13a-14(a)/15d-14(a)
  <br>
&nbsp;</font></div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
  <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman, serif">
  I, Jack P. Dreimiller, certify that: <br>
&nbsp;</font></div>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="5%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #800080; FONT-FAMILY: Times New Roman, serif">
      1. </font>
    </div>
    </td>
    <td align="left" width="2%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #800080; FONT-FAMILY: Times New Roman, serif">
      &nbsp; </font>
    </div>
    </td>
    <td align="left" width="71%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman, serif">
      I have reviewed this Quarterly Report on Form 10-QSB of Precision Optics
      Corporation, Inc.; </font>
    </div>
    </td>
  </tr>
</table>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="5%">&nbsp;</td>
    <td align="left" width="2%">&nbsp;</td>
    <td align="left" width="71%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="5%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #800080; FONT-FAMILY: Times New Roman, serif">
      2. </font>
    </div>
    </td>
    <td align="left" width="2%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #800080; FONT-FAMILY: Times New Roman, serif">
      &nbsp; </font>
    </div>
    </td>
    <td align="left" width="71%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman, serif">
      Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report; </font>
    </div>
    </td>
  </tr>
</table>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="5%">&nbsp;</td>
    <td align="left" width="2%">&nbsp;</td>
    <td align="left" width="71%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="5%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #800080; FONT-FAMILY: Times New Roman, serif">
      3. </font>
    </div>
    </td>
    <td align="left" width="2%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #800080; FONT-FAMILY: Times New Roman, serif">
      &nbsp; </font>
    </div>
    </td>
    <td align="left" width="71%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman, serif">
      Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the small business issuer as of, and for, the periods presented in this
      report; </font>
    </div>
    </td>
  </tr>
</table>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="5%">&nbsp;</td>
    <td align="left" width="2%">&nbsp;</td>
    <td align="left" width="71%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="5%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #800080; FONT-FAMILY: Times New Roman, serif">
      4. </font>
    </div>
    </td>
    <td align="left" width="2%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #800080; FONT-FAMILY: Times New Roman, serif">
      &nbsp; </font>
    </div>
    </td>
    <td align="left" width="71%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman, serif">
      The small business issuer&#146;s other certifying officer(s) and I are
      responsible for establishing and maintaining disclosure controls and
      procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
      the small business issuer and have: </font>
    </div>
    </td>
  </tr>
</table>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="9%">&nbsp;</td>
    <td align="left" width="68%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="9%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
&nbsp;</div>
    </td>
    <td align="left" width="68%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (a) Designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the small business issuer,
      including its consolidated subsidiaries, is made known to us by others
      within those entities, particularly during the period in which this report
      is being prepared; </font>
    </div>
    </td>
  </tr>
</table>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="9%">&nbsp;</td>
    <td align="left" width="68%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="9%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
&nbsp;</div>
    </td>
    <td align="left" width="68%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (b) Evaluated the effectiveness of the small business issuer&#146;s disclosure
      controls and procedures and presented in this report our conclusions about
      the effectiveness of the disclosure controls and procedures, as of the end
      of the period covered by this report based on such evaluation; and </font>
    </div>
    </td>
  </tr>
</table>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="9%">&nbsp;</td>
    <td align="left" width="68%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="9%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
&nbsp;</div>
    </td>
    <td align="left" width="68%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (c) Disclosed in this report any change in the small business issuer&#146;s
      internal control over financial reporting that occurred during the small
      business issuer&#146;s most recent fiscal quarter (the small business issuer&#146;s
      fourth fiscal quarter in the case of an annual report) that has materially
      affected, or is reasonably likely to materially affect, the small business
      issuer&#146;s internal control over financial reporting; and </font>
    </div>
    </td>
  </tr>
</table>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="5%">&nbsp;</td>
    <td align="left" width="2%">&nbsp;</td>
    <td align="left" width="71%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="5%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #800080; FONT-FAMILY: Times New Roman, serif">
      5. </font>
    </div>
    </td>
    <td align="left" width="2%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #800080; FONT-FAMILY: Times New Roman, serif">
      &nbsp; </font>
    </div>
    </td>
    <td align="left" width="71%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman, serif">
      The small business issuer&#146;s other certifying officer(s) and I have
      disclosed, based on our most recent evaluation of internal control over
      financial reporting, to the small business issuer&#146;s auditors and the audit
      committee of the small business issuer&#146;s board of directors (or persons
      performing the equivalent functions): </font>
    </div>
    </td>
  </tr>
</table>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="9%">&nbsp;</td>
    <td align="left" width="68%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="9%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
&nbsp;</div>
    </td>
    <td align="left" width="68%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (a) All significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the small business issuer&#146;s ability
      to record, process, summarize and report financial information; and </font>
    </div>
    </td>
  </tr>
</table>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="9%">&nbsp;</td>
    <td align="left" width="68%">&nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="9%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
&nbsp;</div>
    </td>
    <td align="left" width="68%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      (b) Any fraud, whether or not material, that involves management or other
      employees who have a significant role in the small business issuer&#146;s
      internal control over financial reporting. </font>
    </div>
    </td>
  </tr>
</table>
<p><br>
&nbsp;</p>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="left" width="31%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman, serif">
      Date: February 11, 2004</font><font size="2" face="Times New Roman, serif">
      </font>
    </div>
    </td>
    <td align="left" width="47%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
    </td>
  </tr>
  <tr>
    <td align="left" width="31%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
    </td>
    <td align="left" width="47%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
        <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman, serif">
        /s/&nbsp;&nbsp;</font><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman, serif" size="2">JACK
        P. DREIMILLER</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font><font size="2" face="Times New Roman, serif">
        </font> </div>
    </td>
  </tr>
  <tr>
    <td vAlign="top" width="31%">&nbsp;</td>
    <td vAlign="top" width="47%"><hr width="100%" noShade SIZE="2">

    <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman, serif" size="2">
    Jack P. Dreimiller<br>
    Chief Financial Officer</font></td>
  </tr>
</table>

</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>5
<FILENAME>ex32_1.htm
<TEXT>
<html>

<head>
<title>Exhibit 32</title>
</head>

<body>

<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
  <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; TEXT-DECORATION: underline">
  Exhibit 32.1 </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman; TEXT-DECORATION: underline">
  PRECISION OPTICS CORPORATION, INC. </font>
</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="center">
  <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman; TEXT-DECORATION: underline">
  CERTIFICATION PURSUANT TO</font><font face="Times New Roman" size="2"><br>
  </font>
  <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman; TEXT-DECORATION: underline">
  SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE, </font>
  <font face="Times New Roman" size="2"><br>
  </font>
  <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman; TEXT-DECORATION: underline">
  AS ADOPTED PURSUANT TO</font><font face="Times New Roman" size="2"><br>
  </font>
  <font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman; TEXT-DECORATION: underline">
  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 </font>
  <font face="Times New Roman" size="2"><br>
&nbsp;</font></div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
  &nbsp;</div>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
  <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
  We, Richard E. Forkey, Chief Executive Officer, and Jack P. Dreimiller, Chief
  Financial Officer, of Precision Optics Corporation, Inc. (the &quot;Company&quot;),
  certify, pursuant to Section 1350, Chapter 63 of Title 18, United States Code,
  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
  <br>
&nbsp;</font></div>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="2%" valign="top">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">
      (1) </font>
    </div>
    </td>
    <td align="left" width="2%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">
      &nbsp; </font>
    </div>
    </td>
    <td align="left" width="73%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      The Quarterly Report on Form 10-QSB of the Company for the quarterly
      period ended December 31, 2003 (the &quot;Report&quot;) fully complies with the
      requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
      1934 (15 U.S.C. 78 m or 78o(d)); and </font>
    </div>
    </td>
  </tr>
</table>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="right" width="2%" valign="top">
    &nbsp;</td>
    <td align="left" width="2%">
    &nbsp;</td>
    <td align="left" width="73%">
    &nbsp;</td>
  </tr>
  <tr>
    <td align="right" width="2%" valign="top">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="right">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">
      (2) </font>
    </div>
    </td>
    <td align="left" width="2%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">
      &nbsp; </font>
    </div>
    </td>
    <td align="left" width="73%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      The information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operations of the
      Company. </font>
    </div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="left" width="31%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman">
      Date: February 11, 2004</font><font face="Times New Roman" size="2">
      </font>
    </div>
    </td>
    <td align="left" width="47%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      /s/&nbsp;&nbsp;RICHARD E. FORKEY</font><hr noShade SIZE="1" color="#000000"></div>
    </td>
  </tr>
  <tr>
    <td align="left" width="31%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
    </td>
    <td align="left" width="47%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      Richard E. Forkey, Chairman of the Board,</font><font face="Times New Roman" size="2">
      </font>
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      <br>
      Chief Executive Officer, President and Treasurer</font><font face="Times New Roman" size="2">
      </font>
    </div>
    </td>
  </tr>
  <tr>
    <td vAlign="top" width="31%">&nbsp;</td>
    <td vAlign="top" width="47%">&nbsp;</td>
  </tr>
</table>
<table cellSpacing="0" cellPadding="0" width="100%" align="center">
  <tr>
    <td align="left" width="31%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 11.35pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #800080; FONT-FAMILY: Times New Roman">
      &nbsp;</font><font face="Times New Roman" size="2"> </font>
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #800080; FONT-FAMILY: Times New Roman">
      &nbsp;</font><font face="Times New Roman" size="2"> </font>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
&nbsp;</div>
    </td>
    <td align="left" width="47%">
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 13.65pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      /s/&nbsp;&nbsp;JACK P. DREIMILLER</font><hr noShade SIZE="1" color="#000000">
    </div>
    </td>
  </tr>
  <tr>
    <td vAlign="top" width="31%">&nbsp;</td>
    <td vAlign="top" width="47%">
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      Jack P. Dreimiller, Senior Vice President Finance,</font><font face="Times New Roman" size="2">
    </font>
      <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      <br>
      Chief Financial Officer and Clerk</font><font face="Times New Roman" size="2">
    </font></td>
  </tr>
</table>
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 18pt; LINE-HEIGHT: 12.5pt; MARGIN-RIGHT: 0pt; WHITE-SPACE: pre" align="left">
  <font face="Times New Roman" size="2">
  <br>
&nbsp;</font></div>

</body>

</html>

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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