UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K/A

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AMENDMENT TO
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2003

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Commission File Number: 0-11625

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MFIC CORPORATION(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                       |  | 04-2793022(I.R.S. Employer Identification No.)
|-------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|30 Ossipee Road, P.O. Box 9101
Newton, Massachusetts(Address of principal executive offices) |  | 02464-9101(Zip Code)                          

Registrant's telephone number, including area code: (617) 969-5452
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value

The undersigned registrant hereby amends the following items, financial statements, exhibits, or other portions of its Annual Report for the fiscal year ended
December 31, 2003 on Form 10K as set forth in the pages attached hereto:

|1. |  | Part I:   |  | Item 1  |  |  |  | Business.                                                                            
|-- |  | --------- |  | ------- |  | - |  | -------------------------------------------------------------------------------------
|2. |  | Part I:   |  | Item 2  |  |  |  | Description of Properties.                                                           
|3. |  | Part II:  |  | Item 7  |  |  |  | Management's Discussion and Analysis of Financial Condition and Results of Operation.
|4. |  | Part II:  |  | Item 8  |  |  |  | Financial Statements and Supplementary Data.                                         
|5. |  | Part III: |  | Item 11 |  |  |  | Executive Compensation.                                                              
|6. |  | Part IV:  |  | Item 15 |  |  |  | Exhibits, Financial Statement Schedules, and Reports on Form 8 K.                    

The aggregate market value of Common Stock held by non-affiliates of the registrant (without admitting that any person whose shares
are not included in determining such value is an affiliate), based upon the closing sale price of the Common Stock on March 31, 2004 as reported on the NASDAQ
Over-the-Counter Bulletin Board was $17,749,179. For purposes of this computation, the shares of voting stock held by the Company in treasury and by directors, officers and
beneficial holders of more than 10% of the Common Stock of the registrant were deemed to be stock held by affiliates.

The
number of shares outstanding of the registrant's Common Stock as of April 27, 2004 was 9,888,403 shares.



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PART I

Item 1.    BUSINESS

Company Overview:

MFIC Corporation ("MFIC" or the "Company"), through its wholly-owned subsidiary, Microfluidics Corporation (the "Microfluidics Division"), specializes in
manufacturing and marketing a broad line of Microfluidizer® high shear fluid materials processing systems used in numerous applications in the coatings, pharmaceutical, biotech, food, and
cosmetics industries. Microfluidizer high shear fluid processor systems are produced at the Microfluidics Division. Until its sale on February 9, 2004, the Company operated its Morehouse-COWLES
Division which manufactured and sold a broad line of mechanical fluid materials processing systems used for a variety of grinding, dispersing, milling, and blending applications across a variety of
industries. The Morehouse-COWLES Division manufactured and distributed high shear dispersers, dissolvers, colloid mills, horizontal media mills, vertical media mills, and sold grinding media for such
equipment.

For
almost 20 years MFIC has offered Microfluidizer® high shear fluid processor equipment capable of creating nanostructures (commonly defined as having dimensions in
the 10-1000 nanometer range), including nanoparticles, microemulsions, and nanosuspensions. The equipment's ability to produce commercial quantities of such materials has been important to
producers of pharmaceuticals, coatings and in other industries. The Company's management believes that future commercialization and growth of nanotechnology will be, enabled in large part, by such
manufacturing capability.

Microfluidizer
fluid processing equipment is used by industry to formulate stable emulsions, dispersions, and liposomes, and is used in general for deagglomeration and for cell
disruption in the biotech industry and for liposomal encapsulation. Emulsions are found in a broad variety of common products, including processed foods, pharmaceuticals, and specialty coatings such
as photographic films. Dispersions are often employed in products such as pharmaceuticals, inks, pigments and coatings. The Company believes that the processing technique of the Microfluidizer
processor equipment enhances the stability and consistency of emulsions and dispersions due to the equipment's unique ability to consistently produce uniform micron and sub-micron scale
particles in many applications. Liposomes, which are biodegradable cell-like structures, are used to encapsulate medications or nutrients, and are typically used in cosmetic or
pharmaceutical products. In addition, Microfluidizer processor equipment is used in biotechnology applications to harvest, through cell disruption, the cultivated product contents of plant and animal
cells. The design and operation of the Microfluidizer processor systems with its patented and proprietary fixed geometry interaction chamber results in consistent, uniform and reproducible results.
Further, the Company guarantees scaleup of formulations and results on its equipment from drops per minute on its laboratory and bench top models to gallons per minute on its production models. In
many critical formulations Microfluidizer processors produce better quality products for our customers. Further, the proprietary equipment enables manufacture of unique products which cannot otherwise
be produced.

The
Company's product lines are used to create stable emulsions and dispersions through deagglomeration and particle size reduction. These formulations may be liquid/liquid or
liquid/solid formulations and are generally prepared in quantities ranging from less than one gallon to several thousand gallons in an industrial environment.

The
Microfluidizer processor equipment is generally used in the processing of high value-added end-products that require extremely small particle sizes.

The
Company was incorporated in Delaware in 1983. The Company, formerly named Biotechnology Development Corporation, changed its name effective June 8, 1993 to Microfluidics
International Corporation, and again changed its name effective July 12, 1999 to MFIC Corporation. Its principal executive offices are located at 30 Ossipee Road, in Newton, Massachusetts,
02464-9101

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and
its telephone number is (617) 969-5452. Our web site is located at www.mficcorp.com. We have not incorporated by reference into this prospectus the information on our web site
and you should not consider it to be a part of this document. Our web site address is included in this document as an inactive textual reference only. Unless the context otherwise requires, the terms
"MFIC," "Company," "we," "us" and "our" refer to MFIC Corporation and its subsidiary.

The Technology:

The Company's Microfluidizer materials processor equipment is based on patents and related technology that were licensed by the Company from Arthur D.
Little & Co. in 1983 and subsequently purchased by the Company in 1985. The Company holds two United States patents related to the apparatus and process used to intimately mix liquids and
disperse particulate solids in microemulsions. See "Patents and Proprietary Rights Protection."

The
Microfluidizer material processor differs from conventional mechanical mixing and processing technologies in that it utilizes highly pressurized product streams that travel in
precisely defined microchannels and collide at ultra-high velocities in a small, confined space. There are no moving parts in this mixing and collision zone ("Fixed Geometry"). Combined
forces of shear and impact which in the fixed geometry design act upon products to create what the Company believes are finer, more uniform, and more reproducible dispersions and emulsions than can be
produced by any other means.

The
Company's Microfluidizer processor technology is used in materials processing and product formulation to mix materials that are normally very difficult to mix. The Microfluidizer
processor technology allows manufacturers in the chemical, pharmaceutical, biotechnology, cosmetic, and food processing industries to produce higher quality products with better characteristics on a
more consistent basis than with other blending, mixing, or homogenizing techniques. Additionally, the equipment is used for cell disruption to harvest the cultivated contents of animal and/or plant
cells and for liposomal encapsulation of materials for the cosmetics and biotech/ biopharma industry.

Commercial Applications:

The Microfluidizer processor equipment can be used to mix and formulate stable emulsions, dispersions and liposomes, and for cell disruption.

Emulsions
are homogenous mixtures of oil and water components (or other normally immiscible components), which, if mixed properly, do not readily separate. Emulsions comprise many
products, such as food additives, medicines (including injectable drugs), photographic films, and polymers. The Company believes that, generally, an emulsion processed with Microfluidizer processor
equipment will exhibit improved stability and require reduced concentrations of costly emulsifying agents that are otherwise needed to enhance product stability.

Dispersions
are mixtures of fine solids suspended in liquid so that the two do not separate readily after processing. Similar to emulsions, dispersions are used in a variety of consumer
and industrial products,
including pigments, medicines (including injectable drugs), paints and inks, iron oxide for magnetic tapes, phosphorescent coatings for TV screens and fluorescent lamps, barium titanate for
capacitors, toners and inkjet inks.

Liposomes
are biodegradable cell-like structures, formed from materials such as cholesterol and lecithin, which can be used to encapsulate medications or nutrients.
Pharmaceutical and cosmetic manufacturers use liposomes as a delivery system to target active ingredients for specific anatomical sites and to prolong their efficacy. To date, liposomes have been used
commercially in two predominant applications: medical diagnostic agents and cosmetics. Applications include the encapsulation of dye to be used as a marker in medical diagnostic tests and the
encapsulation of ingredients for deeper skin

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penetration,
or time-release control, as well as pharmaceutical, food and specialized agricultural applications.

In
the biotechnology industry, Microfluidizer processor equipment is currently used to harvest, by cell rupture, the contents of bacteria and mammalian plant or animal cells. The
precision with which the Microfluidizer processor equipment can be used to break up materials allows the encapsulating cell wall to be ruptured without damage to or contamination of the cell contents.
The Microfluidizer processor equipment minimizes the amount and presence of cell wall debris and eliminated grinding media contamination, thus minimizing downstream processing requirements.

The
Microfluidizer equipment is generally used in commercial applications where a scientist, formulator or chemist is trying to develop or improve a product formulation for an expensive,
high value-added end product. Microfluidizer processor equipment is initially employed in a research laboratory, with the equipment subsequently being used in scaleup to pilot scale production of new
or improved products, and ultimately, for full production scale volumes as the improved product comes to market. From laboratory to production, it has been demonstrated that the volume of products
processed range from less than one quarter of a gallon per minute to 18 gallons per minute.

The
Company currently manufactures and markets the following lines of equipment:

The HC Series:The HC Series, also known as "Homogenizers," is a laboratory-scale series of equipment that is intended to
impart moderate levels of energy into a customer's product with greater flow rates than the more energy intensive Microfluidizer processor devices. Operating pressures of products in the Company's HC
Series can range from under 500 psi to as high as 8,000 psi, and will process as much as two liters of fluid per minute.

The M-110 Series:The M-110 Series, is a laboratory product line that operates with available
laboratory air and is designed primarily for research and development applications. Standard models can generate pressures as high as 25,000 psi and have a product flow rate on the order of
one-half liter per minute. The M-110EH includes an on-board electric hydraulic pump system for high performance "lab scale" micro-mixing at processing pressures up
to 25,000 psi and flow rates up to 450 ml/min. It has numerous standard features and options including explosion-proof motors and steam sterilization.

The M-140 Series:The M-140K Series, is a laboratory-scale unit developed for customers in the
chemical, biotechnology, pharmaceutical, cosmetic and food processing industries that require elevated operating pressures and higher shear forces to achieve better performance. The M-140K
can achieve operating pressures up to 40,000 psi. The M-140K has a built-in hydraulic system and utilizes a bi-directional intensifier pump that provides a highly
uniform pressure profile. It has been designed with many accessories and options including an explosion proof motor, control package, and solvent seal quench.

The M-210 Series:The M-210 Series is a pilot unit and is primarily marketed to pharmaceutical,
cosmetic and food product manufacturers who have created a successful new or improved formulation on the M-110 Series unit and would like to increase their production capacity. The
M-210 Series unit is typically used for testing formulations at greater volume levels before initiating full-scale production. For some customers (such as pharmaceutical
product manufacturers), the M-210 Series may have the capacity to function as a production unit.

The M-700 Series:The M-700 Series was introduced at the end of fiscal 1998 and was initially
designed, engineered, and constructed for use in "rugged" industrial environments such as coatings, paints and pigments research and manufacturing. This product line was especially designed to
withstand such hazards as dust, grease, and water spray. Through use of our own proprietary designed intensifier pump and other components, the system has also proven to be more
cost-effective in many user applications.

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More
recently, because of the market demands of the pharmaceutical, biotech and cosmetic industries, the M-700 product line was upgraded to all stainless steel construction,
and meets Good Manufacturing Practices (GMP) requirements. (See discussion under heading "Government Regulations".) It also offers steam in place (SIP) and clean in place (CIP) options.

The
M-700 Series equipment is available in a variety of configurations and flow rates depending upon motor size and the number of intensifier pumps. On the low end of the
spectrum is
the 15 HP, single intensifier pump M-7115 machine with flow rates ranging from 1.0 gpm at 10,000 psi to 0.4 gpm at 30,000 psi. The next size up is the 25 HP, single intensifier pump,
M-7125 machine with flow rates ranging from 2.0 gpm at 10,000 psi to 0.6 gpm at 30,000 psi. Until September 30, 2003, the largest offering of the M-700 series product
line was the 50 HP, dual intensifier pump M-7250 machine with flow rates ranging from 4.0 gpm at 10,000 psi to 1.2 gpm at 30,000 psi.

On
September 30, 2003, Microfluidics introduced a new addition to the M-700 series product line, the 100 HP, dual intensifier pump, Model M-710 machine
with flow rates ranging from 12 gpm at 4,000 psi to 3.0 gpm at 30,000 psi. This model has the equivalent throughput of the larger and more expensive M-610-100 H.P model.

All
M-700 series machines are offered with the capability of operating at 40,000 psi. Additionally, during 2003 the Company introduced several new options and equipment
features to the M-700 series product offerings including:



The M-610 Series:The M-610 Series consists of custom-built models used for large-scale production.
These units have flow rates of up to 18 gallons per minute and generate operating pressures up to 40,000 psi. Generally, these models are available in 25 HP, 50 HP, 75 HP, 100 HP, and 200 HP.

Multiple Stream Mixer/Reactor (MMR):The Company has introduced its patented Multiple Stream Mixer-Reactor (MMR) system as a
continuous chemical reactor, which the Company believes may become a standard device for conducting chemical reactions, many of which can be configured to produce nanoparticles. This system produces
uniform nanoparticles with phase purity previously unachievable with conventional batch reaction technology. This degree of reaction chemistry control can lead to cost-effective product
improvements and the development and manufacture of new nanomaterials in scalable quantities. Applications for the new technology include improving the performance of catalysts, planarization
polishing media, superconductors, abrasive silica, recording media, photographic media and pigments. It also may be used in the development and production of unique pharmaceutical products. The
Company is proceeding with projects involving other companies

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seeking
to optimize or enable drug delivery, catalysts and coatings products, as well as an internal program on nanopolymer creation for drug delivery and other applications. The Company anticipates
making delivery of its first MMR laboratory development systems (in the $200,000$250,000 sales price range) in 2004, with production systems (in the $750,000$1,500,000 sales
price range) in 2005. The Company believes that the MMR systems and technology make it a leader in the provision of systems for continuous production of uniform, reproducible, microparticles,
nanoparticles and nanodroplets.

Morehouse-COWLES Division:

On February 9, 2004, pursuant to an Asset Purchase Agreement (the "Asset Purchase Agreement") dated February 5, 2004 between MFIC Corporation
("MFIC") and a wholly owned subsidiary of NuSil Corporation, a California corporation ("NuSil"), MFIC sold substantially all of the assets and selected liabilities of its Morehouse-COWLES Division
(the "Division"), to NuSil. Other than NuSil's prior purchases of products from the Division, there were no preexisting relationships between MFIC and NuSil.

Prior
to February 9, 2004, the Morehouse-COWLES Division manufactured grinding and dispersing equipment used in a broad number of industries including the coatings and ink
industries. The products included high-speed single and multi-shaft dissolvers and dispersers, stone mills, and vertical and horizontal media mills. As one of the early inventors of
dispersers, dissolvers, stone mills, and media mills, the one hundred-year-old COWLES name is an industry-accepted symbol of quality, reliable products. The Morehouse-COWLES
Division manufactures products that are generally used for blending, mixing, deagglomeration and dispersion of paints and coatings, inks, adhesives, sealants, and pigment dispersions. These
applications are more conventional whereby the formulations are less expensive to produce and the volumes of product produced are large. The Morehouse-COWLES product lines are used in broader, high
volume, lower value-added applications requiring less stringent particle size reduction.

The
Morehouse-COWLES equipment is used independent of the Microfluidizer processor equipment in the preparation of many industrial fluid formulations where the desired product
characteristics do not require the sub-micron size of particles created through treatment with the Microfluidizer materials processor.

Epworth Mill Division:

Prior to October 1, 2000, the Company's Epworth Mill Division products consisted of ball mills and horizontal media mills. The division was also engaged in
the sale and distribution of grinding media. Ball mills are used in coarse grinding application of liquid slurries such as ore from mines or coarse slurries of material that will later be processed
into finer slurries. Ball mills use large media in a horizontal rotating cylindrical vessel to crush and grind the product being processed. The patented Zinger horizontal media mill utilizes a unique
design for grinding and dispersing solid materials in a liquid carrying medium. The design is based upon established rotating, horizontal shaft technology but adds the unique capability of enhanced
mechanical activity between the grinding media and the product formulation. The enhanced mechanical activity is achieved through a unique combination of specially designed rotors and containment
vessels. In comparison to traditional horizontal media mills, the Zinger media mill technology has demonstrated significantly improved productivity in terms of greater volumes of product processed at
acceptable quality than the comparably sized and priced horizontal media mills. On July 24, 2000, the Company announced that it would transfer the manufacturing and sale of its Zinger
horizontal media mills from its Michigan-based Epworth Mill Division to the Morehouse-COWLES Division plant in Fullerton, California. The transfer began on October 1, 2000, and was completed in
the fourth quarter of fiscal 2000.

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On
September 30, 2000, the Company ceased operations of the Ball Mill repair business and decided to sell its Ball Mill operation conducted at the Epworth Mill Division through a
broker. On April 13, 2001 the Company concluded the sale of the assets of the division's operation for $200,000 in cash and a promissory note, which resulted in a loss on the sale of these
assets of approximately $53,000.

Marketing and Sales:

The Company's marketing and sales activities are conducted through a corporate marketing and sales group that is responsible for the worldwide marketing and sales
of all products.

Marketing
programs include media advertising, a website, direct mail, seminars, trade shows and telemarketing. In addition, the Company has an active program of field demonstrations, as
well as demonstrations to potential users in the Company's applications laboratories located in Newton, Massachusetts, Fullerton, California, and Lampertheim, Germany. Distributors and sales agents
worldwide are supported with trade advertising, collateral literature and trade show materials. The distributors and sales agents also advertise directly on their own behalf and attend regional and
international trade shows. As an aid to the marketing and sales activity for the equipment, the Company provides prospective customers with access to its applications laboratories. These laboratories
provide free processing and particle size and distribution analysis of a prospective customer's sample formulation. Additionally, a prospective customer may pay for subsequent laboratory time and
services on a fee for services basis, which includes equipment rentals.

The
Company sells its equipment in the United States through a network of independent manufacturer's representative firms who are managed by the Company's regional sales managers. In
Canada, the Company has an exclusive distributor for the Company's product line. In Europe, the Company sells its equipment through a network of independent regional sales agents and distributors who
are managed by the Company's European Sales organization. In Asia and the Pacific Rim, the Company sells through a network of distributors and independent manufacturer's representative firms.
Customers in other geographical regions are assisted directly by Company sales staff.

Customers:

The users of the Company's Microfluidizer® processor systems are in various industries, including the chemical, pharmaceuticals, food, cosmetic and
biotechnology industries. Two customers accounted for 21% and 11%, respectively, of the revenues from continuing operations in 2003. Two customers accounted for 18% and 16% of the revenues from
continuing operations in 2002, respectively. Two customers accounted for 17% and 10% of the trade accounts receivable from continuing operations as of December 31, 2003, respectively, and one
customer accounted for 13% of the trade accounts receivable as of December 31, 2002. A reduction or delay in orders from these or other significant customers could have a material adverse
effect on the Company's results of operations. No customer accounted for more than 10% of the Company's revenues in 2001.

Competition:

The patented materials processor equipment product line of Microfluidizer® high shear fluid processors has direct competition in its major markets,
including pharmaceutical and coatings/chemical applications, but management believes that the Company's products have larger installed bases and competitive performance advantages over products of our
competitors. The Company believes that the Microfluidizer processor equipment product line offers the highest shear forces available in the process equipment market today. It has been proven in many
instances that for critical formulations Microfluidizer processors produce better quality products for our customers.

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The
M-700 Series of fluid processors, together with the M-210 and M-610 product lines, provide high shear fluid processing capabilities for sanitary,
sterile, and industrial applications. The Company believes that the Microfluidizer processor product line provides a distinct advantage over the product lines of our competitors with respect to the
processing of abrasive slurries or solids dispersed in liquids in large part because of the Company's unique, wear-resistant, diamond interaction chamber and the special design of the
intensifier pumping system.

The
MMR systems may encounter significant competition and there are other companies that possess patents and claims to equipment or processes that claim to make production quantities of
nanoparticles. At least one of these companies, Five Star Technologies Inc. ("Five Star"), has raised significant investment capital from venture capital sources ($4.5 million in its
second round) for its patented technology. Five Star claims the use of hydrodynamic cavitation to achieve production or nano and micro materials. Five Star also claims that its process is inherently
scalable. Although the Company believes that its MMR system is superior in design and function there can be no assurance that Five Star, or others, will not pose a competitive impediment to sales of
the Company's MMR system.

The
Company faces, and will continue to face, intense competition from other companies who manufacture and sell fluid processing systems. The Company is subject to significant
competition from organizations that are pursuing technologies and products that are similar to the Company's technology and products. The Company's future success will depend in large part on its
maintaining its current technologically superior product line and competitive position in the fluid processing systems field. Rapid technological development by the Company or others may result in the
Company's products or technologies becoming obsolete before the Company recovers the expenses it incurs in connection with their development. Products offered by the Company could be made obsolete by
less expensive or more effective technologies. There can be no assurance that the Company will be able to make the enhancements to its technology necessary to compete successfully with newly emerging
technologies. The Company expects competition to intensify in the fluid processing systems field as technical advances are made and become more widely known.

Research and Development:

The Company's research and development efforts are focused on: (i) developing new processing applications for the process industries and further enhancing
the functionality, reliability and performance of existing products, and (ii) development of the Multiple-Stream High Pressure Mixer/Reactor (MMR) by: (a) working with customers who
assist in the development of the system with both application knowledge and financial support, and (b) internal development program relating to interaction chamber design and creation of a
variety nanomaterials. There can be no assurance that the Company will be able to meet the enhancement challenges posed by applications of its core Microfluidizer processor business. Likewise there
can be no assurance that the Company will be able to design and manufacture chambers for its MMR applications that will deliver the desired result for specific applications. Research and development
costs for continuing operations were $785,849, $583,683, and $537,428 in 2003, 2002, and 2001, respectively. Patent coverage for the MMR has been obtained both in the United States and in Europe (with
national entry in process) and is prosecuting the patent application in Canada.

Cooperative Research Arrangements:

The Company subsidizes research and development activities centered around Microfluidizer processor technology at a number of research centers and universities.
The Company's subsidy of these activities takes the form of substantial reduction or elimination of the customary rental charges for the Microfluidizer processor equipment provided for use. The
Company has, in past years, subsidized research and development in the following fields at the following universities: The University of Massachusetts, Lowellbiotechnology; Lehigh
Universitypolymer chemistry; Université Laval

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(Quebec)food
science; Worcester Polytechnic Institute (WPI)catalytic chemistry; and Purdue Universitypharmaceuticals. In addition to their research activities,
these universities provide the Company with contacts at industrial companies that may utilize the Microfluidizer processor technology. Additionally, on occasion, research reports, technical papers,
and doctoral theses may be published, which document the use of Microfluidizer processor technology. Finally, the Company engages in many informal co-operative development efforts with its
customers.

In
addition to providing subsidies, the Company has, in the past, entered into a research arrangement with Worcester Polytechnic Institute (WPI). The Company commenced supported research
and development at WPI in 1988 and continued such support until the mid 1990's. In 1992, the Company entered into a cooperative venture with WPI to develop, patent and license for WPI, for its
commercial applications, the Microfluidizer processor technology in the following fields: (i) the production of
catalysts used in chemical and petroleum processing; (ii) the manufacture of advanced ceramic materials; and (iii) the destruction of volatile organic compounds and other organic
contaminants in process waste water. The Company and WPI applied for United States and foreign patents in 1992 and 1993, respectively, which cite the Microfluidizer processor technology as enabling
the above process technologies. The two applied-for United States patents were both granted and issued to WPI in the United States in 1995. In 1996 one applied for patent was granted to
WPI in France for European entry in the Patent Cooperation Treat (PCT) countries. The program is inactive at this time.

Patents and Proprietary Rights Protection:

To protect its proprietary rights, the Company relies on a combination of U.S. patent and trademark laws, trade secrets, confidentiality agreements, contractual
provisions and technical means. In the event of patent infringement or breach of confidentiality, there can be no assurance that these measures will be adequate or that the Company will have
sufficient resources to prosecute or prevail in an action against a third party. In addition, the Company has not sought patent or trademark protection for its Microfluidizer processor equipment's
interaction chamber in any country other than the United States and, as such, its proprietary rights are not subject to the protection of patent or trademark laws of foreign countries where the
Company's equipment is sold. The Company's Microfluidizer processor equipment process patent expires on March 13, 2007 and its device patent expired on August 6, 2002. The Company does
not believe that the expiration of its patent will result in any material detriment to the Company since the Company has made many alterations, improvements and advances to its equipment over the
years with such modification and innovations having been treated by the Company as trade secrets. In 1997 the Company completed development of a novel adaptation of its Microfluidizer processor
equipmenta Multiple Stream High Pressure Mixer/ Reactor (MMR). In August 1997, the Company filed a patent application for the device and its processes with the United States Patent
and Trademark Office (USPTO), and filed a Patent Cooperation Treaty (PCT) application on May 5, 1998. In July and November 2000, the USPTO issued to the Company notices of allowances of
utility patent claims regarding the MMR and the use thereof. On September 18, 2002, the European Patent Office advised the Company it would grant its MMR patent substantially as applied for,
including its device and process claims. The Company is in the process of pursuing national entry in France, Germany, Italy, The Netherlands, and the United Kingdom. The Company is prosecuting its MMR
patent in Canada.

The
Company maintains confidentiality agreements with its employees and also maintains confidentiality agreements and non-competition agreements with those third parties to
whom it discloses non-public technical information relating to its equipment. The Company believes that enforcement of the provisions of such agreements should adequately protect the
Company's proprietary information. However, in the event of a material breach of such agreements certain of the Company's valuable intellectual property may be disclosed to third parties (including
competitors). In such event,

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despite
provisions for equitable relief and damages in the event of such breaches the Company may suffer competitively and be materially impacted negatively as a result of such unauthorized
disclosure.

Manufacturing:

At present, the Microfluidics Division subcontracts the manufacture and/or machining and finishing of many of the components of its equipment to third parties,
with the Company undertaking the remaining fabrication, assembly and performance testing. The Microfluidics Division has selected certain primary suppliers based upon pricing terms, quality of their
products, and the vendor's performance record. The Company believes that there are adequate available alternate manufacturing sources and suppliers for all of its components and raw materials
requirements.

The
loss of any primary supplier could have a material, adverse effect on the Company's business, financial condition, or results of operations. Therefore, the Company has identified
alternative suppliers for its most critical components of its equipment ("Alternative Sources"). There can be no assurance that a transition to such Alternative Sources will not entail transitional
delays, quality assurance and quality control difficulties, on time delivery problems, any or all of which would likely have an impact on the Company's production of equipment and may have a material
adverse effect on the Company's business, financial condition, or results of operations.

Key Management / Personnel:

The Company's continued operation, innovation and growth are to some significant degree reliant on the continued services of its key executive officers and
leading technical personnel. The Company does not maintain employment contracts with its key management or leading technical personnel. Though the Company believes that it can identify and recruit
replacement key management and technical personnel, there can be no assurance as to such availability, the length of time required to obtain such replacement management and technical personnel, the
salary level that may have to be paid to obtain their respective services, or the impact on operations that may be experienced through the interim absence of such key management and technical
personnel. The loss of key management or leading technical personnel could, therefore, have a material adverse effect on the Company's business, financial condition, or results of operations.

Government Regulation:

Certain of the Company's customers utilize the Company's products in processes and production that are subject to governmental regulation. For example, the
manufacturing and marketing of pharmaceutical products may require the approval of the Food and Drug Administration (FDA) within the United States and of comparable agencies in foreign countries. The
FDA has established mandatory procedures, safety standards and protocols that apply to the manufacture, clinical testing
and marketing of new pharmaceutical products in the United States. The process of seeking and obtaining FDA approval of a new product often takes a number of years and often involves the expenditure
of substantial resources by the Company's customers. The FDA approval process can result in long lead times that are attendant to manufacturing equipment orders for these applications.

Further,
in addition to product approvals, the FDA imposes requirements as to manufacturing practices, record keeping and reporting (Good Manufacturing Practices or GMP).
GMP-regulated companies are subject to inspections by the FDA (inclusive of Microfluidizer processor equipment) and product approvals may be withdrawn if GMP are not met.

At
present, the Company's customers include companies who are making FDA approved drugs, preparations, and products (example: x-ray film) for external use and companies who
utilize Microfluidizer processor equipment for the formulation or production of FDA approved parenteral (injectable) drugs or compounds.

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For
the Company's equipment entering Europe, CE compliance (Regulatory Compliance with European Safety Standards) is required. All products manufactured by the Microfluidics Division are
CE compliant.

Various
laws, regulations and recommendations relating to safe working conditions, laboratory practices and the purchase, storage, movement, import and export, use and disposal of
harmful or potentially harmful substances that may be used in connection with the Company's research work are, or may, be applicable to its activities. These laws include, among others, the United
States Atomic Energy Act, the Clean Air Act, the Clean Water Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act, national restrictions on technology transfer, import, export and customs regulations and other present and possible future local, state or Federal regulation. The extent
of adverse governmental regulation, which might result from future legislation or administrative action, cannot be accurately predicted. Certain agreements that may be entered into by the Company
involving exclusive license rights may also be subject to national or supranational antitrust regulatory control, the effect of which cannot be predicted.

To
date the Company has not been effected by any United States governmental restrictions on technology transfer, import, export and customs regulations and other present local, state or
Federal regulation. The extent of adverse governmental regulation, which might result from future legislation or administrative action, cannot be accurately predicted. In particular, H.R. 3162 enacted
on October 21, 2001 (the "Patriot Act") and other governmental regulation may impose export restrictions on sale of equipment or transfer of technology to certain countries or groups. There can
be no assurance that sale of the Company's equipment will not be impacted by such legislation or designation. Depending upon
which countries and sales may be designated for trade restriction such action could have a material adverse effect on the Company's business, financial condition, or results of operations. Also,
certain agreements that may be entered into by the Company involving exclusive license rights may also be subject to national or supranational antitrust regulatory control, the effect of which cannot
be predicted.

Backlog:

The Company's sales order backlog related to continuing operations of accepted and unfilled orders at March 24, 2004, and March 14, 2003 was
approximately $2,226,000 and $3,146,000, respectively. Backlog as of any particular date should not be relied upon as indicative of the Company's net revenues for any future period.

Employees:

The Company has approximately 41 full-time employees as of March 24, 2004. None of the Company's employees are covered by a collective
bargaining agreement, and the Company considers its relations with its employees to be satisfactory. The Company believes that its future success will depend in large part on its ability to attract
and retain highly skilled employees.

Item 2.    PROPERTIES.

The Company's corporate headquarters are in Newton, Massachusetts. The Company also maintains a sales office and applications laboratory in Lampertheim, Germany
and a sales office and applications laboratory in Fullerton, California. The Company rents approximately 48,200 square feet of offices, production and research and development facilities at these
locations for administrative, development and production activities. A portion of the space at the Newton, MA facility is sublet to a non-affiliated company for a total of $12,000 per
annum under a tenant at will arrangement. The lease terms expire at various times through August 2006. The Company has the option to extend the leases for up to five additional years. The
Company believes these facilities will be adequate for operations for the next several years.

11

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Part II

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

FACTORS WHICH MAY AFFECT FUTURE OPERATIONS AND CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Management believes that this report contains forward-looking statements that are subject to certain risks and uncertainties including statements relating to the
Company's plan to achieve, maintain and/or increase revenue growth and/or operating profitability, and to attain net operating profitability. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties that could cause actual results achieved by the Company to differ materially from those described in the forward-looking
statements. The Company cautions investors that there can be no assurance that the actual results or business conditions will not differ materially from those projected or suggested in such
forward-looking statements as a result of various factors, including but not limited to, the following risks and uncertainties: (i) whether the performance advantages of the Company's
Microfluidizer® materials processing equipment will be realized commercially or that a commercial market for the equipment will continue to develop, (ii) whether the Company will
have access to sufficient working capital through continued and improving cash flow from sales and ongoing borrowing availability, the latter being subject to the Company's ability to comply with the
covenants and terms of the Company's loan agreement with its senior lender, (iii) whether the Company's expectation that the benefits of nanotechnology will, in part, be realized by the ability
of the MMR to produce innovative materials in large quantities, and (iv) whether the Company is able to increase the number of prototype MMR placements and then manufacture and introduce
commercial production MMR equipment.

Critical Accounting Policies

The Company considers certain accounting policies related to revenue recognition and related receivables as well as the valuation of inventories to be critical
policies due to the estimation processes involved in each.

Revenue RecognitionThe Company's policy is to recognize revenue from sales of machines and spare parts upon shipment to our customers and
the fulfillment of all contractual terms and conditions, pursuant to the guidance provided by Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), issued by
the Securities and Exchange Commission.

Rental
income from the lease of equipment is recognized on a straight-line basis over the term of the lease agreement.

Judgments
are required in evaluating the creditworthiness of our customers. In all instances, revenue is not recognized until the Company has determined that collection is reasonably
assured.

Should
changes in conditions cause management to determine the aforementioned criteria are not met for certain future transactions, revenue recognized for any reporting period could be
adversely affected.

Allowance for Doubtful AccountsThe Company's policy is to maintain allowances for estimated losses resulting from the inability of our
customers to make scheduled payments. The Company regularly evaluates the collectibility of our trade receivable balances based on a combination of factors. When a customer's account balance becomes
past due, we initiate dialogue with the customer to determine the cause. If it is determined that the customer will be unable to meet its financial obligation to us, we record a specific allowance to
reduce the related receivable to the amount we expect to recover given all information presently available.

12

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The
Company believes our reported allowances are adequate as of December 31, 2003 and 2002. If the financial condition of our customers were to deteriorate, however, resulting in
their inability to make payments, the Company may need to record additional allowances, which would result in additional expenses being recorded for the period in which such determination was made.

Inventory ValuationThe Company values its inventory at the lower of cost or net realizable value on a
first-in-first-out method. Management regularly evaluates inventory quantities on hand and records a provision for obsolete or excess inventory levels greater than
those of anticipated usage in the subsequent two years. There are external factors that may require an adjustment to the anticipated demand including, but not limited to, technological changes in our
markets, our ability to meet changing customer requirements, competitive pressures in products and prices, and the availability of key components from our suppliers. Purchasing requirements and
alternative usage avenues are explored within these processes to mitigate inventory exposure. When recorded, our Company's reserves are intended to reduce the carrying value of our inventory to its
net realizable value.

ImpairmentIt has been the Company's policy to review the carrying values of long-lived assets and amortizable
intangibles for impairment whenever an event or changes in circumstances indicated that the carrying amount of an asset may not be recoverable.

Product WarrantiesThe Company's products are generally sold with a twelve month warranty provision that require us to remedy
deficiencies in quality or performance of our products at no cost to our customers only after it has been determined that the cause of the deficiency is not due to the actions of the machine operator
or product used in the machine.

Fiscal 2003 Compared to Fiscal 2002

In 1998, the Company purchased the assets and liabilities of Morehouse-COWLES Inc. (the "Morehouse-COWLES Division"). This was undertaken to complete a
strategic combination with the Microfluidics Division, in order to enhance the Company's position in the coatings market, which, at the time, was the dominant part of the Company's business.

Since
that time, the direction of the core business of the Company changed significantly from coatings to other areas, (in particular the Health Care sector). The Company determined that
it could no longer support the previous strategic plan and the Company, therefore, prepared a plan to divest the Morehouse-COWLES Division.

It
was expected that the sale would positively impact the Company's cash flow, and would allow the Company to focus on the core business, and expand its sales and marketing resources for
the Company's Microfluidizer processor systems line, and promote its new MMR nanoparticle production systems.

During
the fourth quarter of 2003, management committed to a plan to sell substantially all the assets and associated liabilities of the Morehouse-COWLES Division. Accordingly, at year
end, the Company reported the division as discontinued operations and reclassified the assets and associated liabilities as available for sale. The search for a buyer eventually resulted in NuSil
Corporation, a California corporation ("NuSil") making an offer in December 2003 to purchase the Morehouse-COWLES Division's assets and related liabilities at a price that was acceptable to the
Company.

On
February 9, 2004, pursuant to an Asset Purchase Agreement (the "Asset Purchase Agreement") dated February 5, 2004 between MFIC Corporation ("MFIC") and a wholly owned
subsidiary of NuSil, MFIC sold substantially all of the assets and selected liabilities of the Morehouse-COWLES Division to NuSil. Other than NuSil's prior purchases of products from the
Morehouse-COWLES Division, there were no preexisting relationships between MFIC and NuSil.

13

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The
assets of the Morehouse-COWLES Division that were sold included accounts receivable, furniture, fixtures and equipment, inventory and supplies, books and records, bids, contracts,
prepaid expenses, leases, intellectual property, goodwill, domain names and claims, all as described in the Asset Purchase Agreement (collectively, the "Assets"). In addition, certain rights and
obligations arising after February 9, 2004 under the Morehouse-COWLES Division's PacifiCare Group Health Insurance Policy were assigned. The Morehouse-COWLES Division's cash or cash equivalents
on hand on February 9, 2004 were excluded from the assets being sold. Under the Asset Purchase Agreement, the Morehouse-COWLES Division's executory obligations under certain contracts and bids,
and the Morehouse-COWLES Division's accounts payable as of February 9, 2004 in the amount of $623,240, were assumed by NuSil.

The
purchase price (other than the assumption of accounts payable described in the preceding paragraph) paid under the Asset Purchase Agreement was $918,238. Of the purchase price,
$768,238 (the "Closing Cash") was paid in cash, $100,000 was paid in the form of a Promissory Note (the "Purchase Note") and $50,000 (the "Holdback Payment") was withheld for payment at a future date
subject to any purchase price adjustments and offsets, as provided for in the Asset Purchase Agreement.

The
Closing Cash was paid directly to PNC Bank, National Association ("PNC"), to be applied to MFIC's outstanding balance under MFIC's Revolving Credit Loan with PNC (the "Revolving
Credit Loan").

The
aforementioned Purchase Note bears interest at 5 percent per annum, is secured by the Assets pursuant to a Security Agreement dated February 5, 2004 (the "Security
Agreement") between the parties and is subject to certain offsets as provided in the Asset Purchase Agreement. Principal and interest on the Purchase Note are payable on February 9, 2005,
unless there is a claim for an offset as
allowed for under the Asset Purchase Agreement, which claim might delay final payment of amounts due under the Purchase Note until final resolution of any such claim under the procedures outlined in
the Asset Purchase Agreement.

Pursuant
to the Asset Purchase Agreement, MFIC entered into a Noncompetition and Nonsolicitation Agreement, dated February 5, 2004, which limits MFIC's ability to compete with the
business of the Morehouse-COWLES Division for a period of five years.

The
sale generated a loss of approximately $1,400,000. Due to the sale of the Morehouse-COWLES Division, goodwill associated with the 1998 purchase of the Morehouse-COWLES Division in
the amount of $2,100,000 has been impaired in 2003.

Results of Continuing Operations

Total revenues for the year ended December 31, 2003 from continuing operations were $10,459,631 as compared to revenues of $9,514,180 for the year ended
December 31, 2002, representing an increase of $945,451, or 10%.

North
American sales for the year ended December 31, 2003 decreased to approximately $5,337,000, or 17%, as compared to North American sales of approximately $6,462,000 for the
year ended December 31, 2002. This decrease in North American sales was principally due to a decrease in the sale of machines. Foreign sales were approximately $5,123,000 for the year ended
December 31, 2003 compared to $3,052,000 for the year ended December 31, 2002, an increase of $2,071,000 or 68%. This increase in foreign sales was principally due to an increase in the
sale of machines.

Total
cost of goods sold for 2003 from continuing operations was $4,988,226 or 48% of revenue, as compared to $4,438,351 or 47% of revenue for 2002. The increase in cost of goods sold
reflects primarily the increase in sales generated by the Company. The Company's major product lines have different profit margins, as well as multiple profit margins within each product line. In the
course of

14

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the
periods compared, there may be significant changes in the cost of revenues as a percentage of revenue depending on the mix of product sold. Also, the cost of sales as a percent of revenue will
differ between laboratory and pilot plant units sold, due to the difference in costs between air driven and electric-hydraulic units.

Total
operating expenses from continuing operations for 2003 were $4,705,325 or 45% of revenue, as compared to $4,434,114 or 47% of revenue for 2002, which is an increase of $271,211 or
6%.

Research
and development expenses for 2003 were $785,849 compared to $583,683 for 2002, an increase of $202,166 or 35%. The increase in research and development expenses is primarily due
to an increase in research costs of approximately $131,000, and an increase in payroll and related costs of approximately $96,000, partially offset by a decrease in amortization costs of approximately
$12,000, and a decrease in outside contract services of approximately $13,000.

Selling
expenses for 2003 increased approximately $101,000, from $2,086,547 in 2002 to $2,187,389 or 5%. The increase was due principally to an increase of approximately $124,000 in
payroll and related costs, approximately $100,000 in travel and entertainment costs, and $54,000 in delivery costs, partially offset by a decrease in advertising expenses of approximately $107,000 and
a decrease in commission expense of approximately $70,000.

General
and administrative expenses for 2003 decreased by approximately $32,000, from $1,763,884 for the year ended December 31, 2002, to $1,732,087, or 2%. The decrease in
general and administrative expenses is primarily due to a decrease in payroll costs of approximately $87,000, a decrease in professional fees of approximately $58,000, and a decrease in corporate
expenses of approximately $37,000, offset by increases in bad debt expense of approximately $101,000 and overhead costs of approximately $48,000.

Interest
expense for 2003 decreased from $179,429 in 2003 to $116,097, a decrease of $63,332, or 35%. The decrease was due principally to a reduction in the interest rate paid, and a
reduction in the amount of debt borrowed.

Interest
income for 2003 increased to $9,508 from $7,191 for 2003, an increase of $2,317. The increase is due to interest earned on the note and accounts receivable remaining from the
sale of the Ball Mill operation.

Results of Discontinued Operations

Total revenues for the year ended December 31, 2003 from discontinued operations were $3,655,237 as compared to revenues of $5,059,202 for the year ended
December 31, 2002, representing a decrease of $1,403,965, or 28%. The decrease in revenues is due primarily to a decrease in machine sales of approximately $930,000, and a decrease in spare
parts of approximately $496,000.

North
American sales for the year ended December 31, 2003 decreased to approximately $2,798,000, or 28%, as compared to North American sales of approximately $3,880,000 for the
year ended December 31, 2002. This decrease in North American sales was principally due to a decrease in the sale of machines. Foreign sales were approximately $835,000 for the year ended
December 31, 2003 compared to $1,179,000 for the year ended December 31, 2002, a decrease of approximately $344,000 or 29%.

Total
cost of goods sold for 2003 was $2,601,957 or 71% of revenue, as compared to $3,626,407 or 72% of revenue for 2002. The decrease in cost of goods sold reflects primarily the
decrease in sales generated by the Morehouse-COWLES Division. The Morehouse-COWLES Division's major product lines have different profit margins, as well as multiple profit margins within each product
line. In the course of the periods compared, there may be significant changes in the cost of revenues as a percentage of revenue depending on the mix of product sold.

15

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Total
operating expenses for 2003 were $1,640,490 or 45% of revenue, as compared to $1,754,837 or 35% of revenue for 2002, which is a decrease of $114,347 or 7%.

Research
and development expenses for 2003 were $318,105 compared to $322,811 for 2002, a decrease of $4,706 or 1%. The decrease in research and development expenses is primarily due to
a decrease in payroll and related costs of approximately $6,000.

Selling
expenses for 2003 decreased approximately $143,000, from $1,006,746 in 2002 to $863,337 or 14%. The decrease was due principally to the reduction of selling expenses at the
Morehouse-COWLES Division's Eastern sales office located in South Haven, Michigan of approximately $70,000, a decrease in payroll and related costs of approximately $68,000, a decrease in commission
expense of approximately $24,000, and a decrease in travel expenses of approximately $79,000, partially offset by increases of approximately $95,000 in advertising costs and approximately $14,000 in
demonstration cost expenses.

General
and administrative expenses for 2003 increased by approximately $34,000, from $425,280 for the year ended December 31, 2002 to $459,048, or 8%. The increase in general and
administrative expenses is primarily due to an increase in professional fees of approximately $16,000.

Under
SFAS No. 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. Upon adoption of SFAS No. 142 in the
first quarter of 2002, the Company recorded a one-time, noncash charge of $2,661,409 to reduce the carrying value of its goodwill. Such charge is nonoperational in nature and is reflected
in discontinued
operations in the accompanying consolidated statement of operations pursuant to the SFAS No. 142 transition rules.

Fiscal 2002 Compared to Fiscal 2001

Results of Continuing Operations

Total revenues for the year ended December 31, 2002 from continuing operations were $9,514,180 as compared to revenues of $11,210,375 for the year ended
December 31, 2001, representing a decrease of $1,696,195 or 15%.

North
American sales for the year ended December 31, 2002 were approximately $6,462,000, a 13% decrease as compared to North American sales of approximately $7,444,000 for the
year ended December 31, 2001. This decrease in North American sales was principally due to a decrease in the sale of machines. Foreign sales were approximately $3,052,000 for the year ended
December 31, 2002 compared to $3,766,000 for the year ended December 31, 2001, a decrease of $714,000 or 19%. The decrease in foreign sales was principally due to a decrease in the sale
of machines compared to 2001.

Total
cost of goods sold for 2002 was $4,438,351 or 47% of revenue, as compared to $5,629,484 or 50% of revenue for 2001. The decrease in cost of goods sold in absolute dollars reflects
principally the decrease in sales generated by the Company compared to the previous year. It also reflects an increase in profit margins. The Company's major product lines have different profit
margins, as well as multiple profit margins within each product line. In the course of the periods compared, there may be significant changes in the cost of revenues as a percentage of revenue
depending on the mix of product sold. Also, the cost of sales as a percent of revenue will differ between laboratory and pilot plant units sold, due to the difference in costs between air driven and
electric-hydraulic units.

Total
operating expenses for 2002 were $4,434,114, or 47% of revenue, as compared to $5,305,418, or 47% of revenue, for 2001, which is a decrease of $871,304, or 16%.

Research
and development expenses for 2002 were $583,683 compared to $537,428 for 2001, an increase of $46,255, or 9%. The increase in research and development expenses is principally
due to an increase in payroll costs, as a result of both an increase in headcount and pay increases.

16

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Selling
expenses for 2002 decreased approximately $177,000, or 8% from $2,263,226 to $2,086,547. The decrease was due principally to a decrease in payroll costs of approximately
$141,000, a decrease in travel and entertainment of approximately $72,000, a decrease in supplies of approximately $23,000, partially offset by an increase in outside commissions of approximately
$66,000.

For
the year ended December 31, 2002, general and administrative expenses decreased by approximately $741,000, from $2,504,764 for the year ended December 31, 2001, to
$1,763,884, or 30%. The decrease in general and administrative expenses was principally due to a decrease in amortization of goodwill costs of approximately $422,000, as a result of the adoption of
SFAS No. 142, media costs of approximately $169,000, professional fees of approximately $86,000, and other cost decreases of approximately $64,000.

Interest
expense for 2002 decreased to $179,429 from $261,754 for 2001, a decrease of $82,325, or 31%. The decrease was due primarily to a decrease in the interest rates charged the
Company.

Interest
income for 2002 increased to $7,191 from $7,032 for 2001, an increase of $159 or 2%.

Results of Discontinued Operations

Total revenues for the year ended December 31, 2002 were $5,059,202 as compared to revenues of $4,300,639 for the year ended December 31, 2001,
representing an increase of $758,563 or 18%.

North
American sales for the year ended December 31, 2002 were approximately $3,880,000, a 22% increase as compared to North American sales of approximately $3,186,000 for the
year ended December 31, 2001. The increase in North American sales was due to an increase in the sale of both machines and spare parts. Foreign sales were approximately $1,179,000 for the year
ended December 31, 2002, as compared to foreign sales of approximately $1,114,000, an increase of $65,000 or 1%. The increase in foreign sales was principally due to an increase in the sale of
machines compared to 2001.

Total
cost of goods sold for 2002 was $3,626,407 or 72% of revenue, as compared to $3,268,271 or 76% of revenue for 2001. The increase in cost of goods sold in absolute dollars reflects
principally the increase in sales generated by the Morehouse-COWLES Division. It also reflects an increase in profit margins. The Morehouse-COWLES Division's major product lines have different profit
margins, as well as multiple profit margins within each product line. In the course of the periods compared, there may be significant changes in the cost of revenues as a percentage of revenue
depending on the mix of product sold.

Total
operating expenses for 2002 were $1,754,837, or 35% of revenue, as compared to $1,525,163, or 35% of revenue, for 2001, which is an increase of $229,674, or 15%.

Research
and development expenses for 2002 were $322,811 compared to $320,063 for 2001, an increase of 2,748, or 1%.

Selling
expenses for 2002 increased approximately $221,000, or 28% from $786,192 to $1,006,746. The increase was due principally to an increase in media costs of approximately $136,000,
in payroll and related costs of approximately $50,000, an increase in travel costs of approximately $73,000, and demonstration cost expenses of approximately $48,000, partially offset by a decrease in
commission costs of approximately $71,000.

For
the year ended December 31, 2002, general and administrative expenses increased by approximately $6,000, from $418,908 for the year ended December 31, 2001, to
$425,280, or 2%. The increase in general and administrative expenses was principally due to an increase in payroll and related costs of approximately $44,000, partially offset by a decrease in bad
debt expense of approximately $31,000.

17

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On
July 24, 2000, the Company announced that it would transfer the sales and manufacturing of its line of Zinger® horizontal media mills from its Michigan-based
Epworth Mill Division to the Morehouse-COWLES Division's plant in Fullerton, California. The transfer began on October 1, 2000 and did not have a material impact on the profitability of the
Company. Simultaneously, the Company ceased operations of the Ball Mill repair business and decided to sell its Ball Mill product line. On March 19, 2001, the Company reached an agreement to
sell the Ball Mill operation for $200,000 in cash and notes.

In
October, 2000, the Company entered into a settlement agreement related to a warranty claim against the Epworth Mill Division, pursuant to which the Company paid $100,000 upon
execution of the agreement, and executed a promissory note for $350,000 payable two years from the execution date,
with interest payable quarterly in arrears at 10% per annum. The Company paid off the balance of this note in December, 2002.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth, for the periods presented, certain data from our consolidated statements of operations. In the opinion of our management, the
unaudited quarterly consolidated statement of operations data have been prepared on substantially the same basis as our audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods presented. This information should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The operating results in any quarter are not necessarily indicative of the
results that may be expected for any future period. Fiscal 2003 and 2002 quarters have been restated to reflect the discontinued operations of the Company.

Summarized
unaudited quarterly financial data are as follows:

|                                                                                                    |  | Fiscal 2003 Quarters |          
|--------------------------------------------------------------------------------------------------- |  | -------------------- | ---------
|
|Revenues                                                                                            |  | $                    | 2,949,677
|Gross income                                                                                        |  |                      | 1,491,923
|Net income (loss) from continuing operations                                                        |  |                      | 405,571  
|(Loss) from discontinued operations including loss on disposal of $1,422,715 in fourth quarter 2003 |  |                      | (215,899 
|Net income (loss)                                                                                   |  |                      | 189,672  
|Basic net income (loss) per share from continuing operations:                                       |  | $                    | .05      
|Basic net loss per share from discontinued operations                                               |  | $                    | (.03     
|Basic, as reported                                                                                  |  | $                    | .03      
|Diluted net income (loss) per share from continuing operations                                      |  | $                    | .05      
|Diluted net loss per share from discontinued operations                                             |  | $                    | (.03     
|Diluted, as reported                                                                                |  | $                    | .03      

18

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|                                                                 |  | Fiscal 2002 Quarters |           
|---------------------------------------------------------------- |  | -------------------- | ----------
|
|Revenues                                                         |  | $                    | 2,739,707 
|Gross income                                                     |  |                      | 1,442,428 
|Net income (loss) continuing operations                          |  |                      | 235,659   
|(Loss) income from discontinued operations                       |  |                      | (2,796,821
|Net (loss) income                                                |  |                      | (2,561,162
|Basis net income (loss) per share:                               |  |                      |           
|Net income (loss) per share from continuing operations           |  | $                    | .03       
|Basic net (loss) income per share from discontinued operations   |  | $                    | (.38      
|Basic, as reported                                               |  | $                    | (.33      
|Diluted net income (loss) per share:                             |  |                      |           
|Net income (loss) per share from continuing operations           |  | $                    | .03       
|Diluted net (loss) income per share from discontinued operations |  | $                    | (.38      
|Diluted, as reported                                             |  | $                    | (.33      

19

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Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements of the Company and its Subsidiary appear at the end of this report starting on page F-1 and include:

PageReport of Independent Auditors

F-1Consolidated Balance Sheets as of December 31, 2003 and 2002

F-2Consolidated Statements of Operations for the years ended December 31, 2003, 2002, and 2001

F-3Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002, and 2001

F-4Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2003, 2002, and 2001

F-5Notes to Consolidated Financial Statements

F-6


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INDEPENDENT AUDITORS REPORT

The
Board of Directors and Stockholders of MFIC Corporation:

We
have audited the accompanying consolidated balance sheets of MFIC Corporation and subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the Index
at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and
schedule based on our audits.

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

In
our opinion, the 2003 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of MFIC Corporation and
subsidiaries at December 31, 2003 and 2002 and the consolidated results of their operations and their cash flows for the three years in the period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.

As
discussed in Note 4 to the financial statements, on February 5, 2004, the Company entered into an agreement to sell a major division of its operations. The division
represents a significant portion of the Company's total assets and operations.

| |  | /s/BROWN & BROWN, LLP
| |  | ---------------------

Boston, Massachusetts
March 11, 2004, Except for Note 15, as to which
the date is March 31, 2004

F-1

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MFIC CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                    |  | December 31, |            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -----------
|
|ASSETS                                                                                                                                                                                              |  |              |            
|Current Assets:                                                                                                                                                                                     |  |              |            
|Cash and cash equivalents                                                                                                                                                                           |  | $            | 50,270     
|Accounts receivable, less allowance for doubtful accounts of $58,500 and $33,500 in 2003 and 2002, respectively                                                                                     |  |              | 1,814,584  
|Note receivablecurrent                                                                                                                                                                             |  |              | 16,429     
|Inventories, net                                                                                                                                                                                    |  |              | 1,683,703  
|Prepaid expenses                                                                                                                                                                                    |  |              | 207,210    
|Other current assets                                                                                                                                                                                |  |              | 38,749     
|Assets available for sale                                                                                                                                                                           |  |              | 1,383,118  
|                                                                                                                                                                                                    |  |              |            
|TOTAL CURRENT ASSETS                                                                                                                                                                                |  |              | 5,194,063  
|Property and Equipment, at cost:                                                                                                                                                                    |  |              |            
|Furniture, fixtures and office equipment                                                                                                                                                            |  |              | 330,022    
|Machinery and equipment                                                                                                                                                                             |  |              | 219,765    
|Leasehold improvements                                                                                                                                                                              |  |              | 50,568     
|                                                                                                                                                                                                    |  |              |            
|                                                                                                                                                                                                    |  |              | 600,355    
|Less: Accumulated depreciation and amortization                                                                                                                                                     |  |              | (418,066   
|                                                                                                                                                                                                    |  |              |            
|Net property and equipment                                                                                                                                                                          |  |              | 182,289    
|Note receivablelong-term                                                                                                                                                                           |  |              | 54,761     
|Patents, licenses and other assets (net of accumulated amortization of $303,785 in 2003 and $299,985 in 2002)                                                                                       |  |              | 55,978     
|                                                                                                                                                                                                    |  |              |            
|TOTAL ASSETS                                                                                                                                                                                        |  | $            | 5,487,091  
|                                                                                                                                                                                                    |  |              |            
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                                |  |              |            
|Current Liabilities:                                                                                                                                                                                |  |              |            
|Line of credit                                                                                                                                                                                      |  | $            | 2,425,613  
|Accounts payable and accrued expenses                                                                                                                                                               |  |              | 1,061,897  
|Accrued interestrelated party                                                                                                                                                                      |  |              | 2,639      
|Accrued compensation and vacation pay                                                                                                                                                               |  |              | 111,855    
|Customer advances                                                                                                                                                                                   |  |              | 223,501    
|Current portion of term note payable                                                                                                                                                                |  |              | 58,735     
|Current portion of long-term debtrelated party                                                                                                                                                     |  |              | 75,000     
|Liabilities associated with assets available for sale                                                                                                                                               |  |              | 661,095    
|                                                                                                                                                                                                    |  |              |            
|TOTAL CURRENT LIABILITIES                                                                                                                                                                           |  |              | 4,620,335  
|                                                                                                                                                                                                    |  |              |            
|Long-term debt, net of current portion- related party                                                                                                                                               |  |              | 6,250      
|Term note                                                                                                                                                                                           |  |              |           
|Commitments (Note 11)                                                                                                                                                                               |  |              |            
|Stockholders' Equity:                                                                                                                                                                               |  |              |            
|Common Stock, par value $.01 per share, 20,000,000 shares authorized; 8,288,604 and 7,965,510 shares issued; 8,028,158 and 7,705,064 shares outstanding at December 31, 2003 and 2002, respectively |  |              | 80,281     
|Additional paid-in capital                                                                                                                                                                          |  |              | 13,150,862 
|Accumulated deficit                                                                                                                                                                                 |  |              | (11,682,936
|Less: Treasury Stock, at cost, 260,446 shares at December 31, 2003 and 2002, respectively                                                                                                           |  |              | (687,701   
|                                                                                                                                                                                                    |  |              |            
|TOTAL STOCKHOLDERS' EQUITY                                                                                                                                                                          |  |              | 860,506    
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                          |  | $            | 5,487,091  
|                                                                                                                                                                                                    |  |              |            

The accompanying notes are an integral part of these consolidated financial statements.

F-2

---





MFIC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                                               |                            | Years Ended December 31, |           
|-------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------ | ----------
|
|Revenues                                                                                                       |                            | $                        | 10,459,631
|Cost of goods sold                                                                                             |                            |                          | 4,988,226 
|                                                                                                               |                            |                          |           
|Gross income                                                                                                   |                            |                          | 5,471,405 
|Operating expenses:                                                                                            |                            |                          |           
|                                                                                                               | Research and development   |                          |           
|                                                                                                               | Selling                    |                          |           
|                                                                                                               | General and administrative |                          |           
|                                                                                                               |                            |                          |           
|Total operating expenses                                                                                       |                            |                          | 4,705,325 
|                                                                                                               |                            |                          |           
|Income from continuing operations                                                                              |                            |                          | 766,080   
|Interest expense                                                                                               |                            |                          | (116,097  
|Interest income                                                                                                |                            |                          | 9,508     
|Other expense                                                                                                  |                            |                          |          
|                                                                                                               |                            |                          |           
|Net income (loss) from continuing operations                                                                   |                            |                          | 659,491   
|Loss from discontinued operations (Net of loss from disposal of discontinued operations of $1,422,715 in 2003) |                            |                          | (4,109,925
|                                                                                                               |                            |                          |           
|Net loss                                                                                                       |                            | $                        | (3,450,434
|                                                                                                               |                            |                          |           
|Weighted average number of common and common equivalent shares outstanding:                                    |                            |                          |           
|Basic                                                                                                          |                            |                          | 7,767,712 
|Diluted                                                                                                        |                            |                          | 8,501,110 
|Basic amounts per common share:                                                                                |                            |                          |           
|Net income (loss) per share from continuing operations                                                         |                            | $                        | .08       
|Basic net (loss) per share from discontinued operations                                                        |                            | $                        | (.52      
|Basic, as reported                                                                                             |                            | $                        | (.44      
|Diluted amounts per common share:                                                                              |                            |                          |           
|Net income (loss) per share from continuing operations                                                         |                            | $                        | .08       
|Diluted net (loss) per share from discontinued operations                                                      |                            | $                        | (.52      
|Diluted, as reported                                                                                           |                            | $                        | (.44      

The
accompanying notes are an integral part of these consolidated financial statements.

F-3

---



MFIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                            |                                                  | Years Ended December 31, |           
|------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------ | ----------
|
|Cash flows from operating activities:                                                       |                                                  |                          |           
|Net loss                                                                                    |                                                  | $                        | (3,450,434
|Adjustments to reconcile net loss to net cash used in operating activities:                 |                                                  |                          |           
|Change in accounting principle                                                              |                                                  |                          |          
|Impairment of Goodwill                                                                      |                                                  |                          | 2,100,000 
|Provision for disposal of discontinued operations                                           |                                                  |                          | 1,422,715 
|Depreciation and amortization                                                               |                                                  |                          | 264,101   
|Provision for loss on trade receivables                                                     |                                                  |                          | 24,378    
|Provision for other receivables                                                             |                                                  |                          | 76,000    
|Provision for obsolete inventory                                                            |                                                  |                          | 60,000    
|Gain on sale of assets                                                                      |                                                  |                          | (26,931   
|Issuance of restricted common stock to consultants                                          |                                                  |                          |          
|Changes in assets and liabilities:                                                          |                                                  |                          |           
|                                                                                            | Receivables                                      |                          |           
|                                                                                            | Inventories                                      |                          |           
|                                                                                            | Prepaid expenses                                 |                          |           
|                                                                                            | Other current assets                             |                          |           
|                                                                                            | Current liabilities                              |                          |           
|                                                                                            | Loss on sale of Ball Mill repair business assets |                          |           
|                                                                                            |                                                  |                          |           
|Net cash provided by operating activities                                                   |                                                  |                          | 236,292   
|Cash flows from investing activities:                                                       |                                                  |                          |           
|Proceeds from sale of fixed assets                                                          |                                                  |                          | 26,931    
|Purchase of fixed assets                                                                    |                                                  |                          | (96,532   
|Issuance of note receivable in connection with sale of Ball Mill operation                  |                                                  |                          |          
|Proceeds from note receivable                                                               |                                                  |                          | 16,429    
|Proceeds from sale of Ball Mill repair business assets (net of selling expenses of $40,000) |                                                  |                          |          
|                                                                                            |                                                  |                          |           
|Net cash used in investing activities                                                       |                                                  |                          | (53,172   
|Cash flows from financing activities:                                                       |                                                  |                          |           
|Net payments on bank line of credit                                                         |                                                  |                          | (256,374  
|Net proceeds from bank line of credit                                                       |                                                  |                          |          
|Payments on term note                                                                       |                                                  |                          | (95,004   
|Payments on note payable                                                                    |                                                  |                          |          
|Issuance of common stock under employee stock purchase plan                                 |                                                  |                          | 11,713    
|Issuance of common stock under employee stock option plan                                   |                                                  |                          | 144,859   
|Issuance of common stock purchased through warrants                                         |                                                  |                          | 52,000    
|Purchase of common stock                                                                    |                                                  |                          |           
|Payments on subordinated debt-related party                                                 |                                                  |                          | (75,000   
|                                                                                            |                                                  |                          |           
|Net cash (used in) provided by financing activities                                         |                                                  |                          | (217,806  
|Net (decrease) in cash and cash equivalents                                                 |                                                  |                          | (34,686   
|Cash and cash equivalents, beginning of year                                                |                                                  |                          | 84,956    
|                                                                                            |                                                  |                          |           
|Cash and cash equivalents, end of year                                                      |                                                  | $                        | 50,270    
|                                                                                            |                                                  |                          |           
|Supplemental disclosure of cash flow information:                                           |                                                  |                          |           
|Cash paid for interest                                                                      |                                                  | $                        | 130,967   
|                                                                                            |                                                  |                          |           

The accompanying notes are an integral part of these consolidated financial statements.

F-4

---



MFIC CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

|                                                            |  | Common Stock |  |   |        | Treasury Stock |   |            | 
|----------------------------------------------------------- |  | ------------ |  | - | ------ | -------------- | - | ---------- | 
|
|Balance, December 31, 2000                                  |  | 7,588,948    |  | $ | 75,889 |                | $ | 12,891,904 | 
|Stock options exercised                                     |  | 24,375       |  |   | 245    |                |   | 7,369      | 
|Issuance of common stock under employee stock purchase plan |  | 30,658       |  |   | 306    |                |   | 17,603     | 
|Purchase of treasury stock                                  |  |             |  |   |       |                |   |           | 
|Net loss                                                    |  |             |  |   |       |                |   |           | 
|                                                            |  |              |  |   |        |                |   |            | 
|Balance, December 31, 2001                                  |  | 7,643,981    |  |   | 76,440 |                |   | 12,916,876 | 
|Stock options exercised                                     |  | 19,375       |  |   | 194    |                |   | 5,812      | 
|Issuance of common stock under employee stock purchase plan |  | 29,207       |  |   | 292    |                |   | 11,289     | 
|Issuance of common stock to consultants                     |  | 12,501       |  |   | 125    |                |   | 11,543     | 
|Net loss                                                    |  |             |  |   |       |                |   |           | 
|                                                            |  |              |  |   |        |                |   |            | 
|Balance, December 31, 2002                                  |  | 7,705,064    |  |   | 77,051 |                |   | 12,945,520 | 
|Stock options exercised                                     |  | 186,377      |  |   | 1,863  |                |   | 142,996    | 
|Issuance of common stock under employee stock purchase plan |  | 36,717       |  |   | 367    |                |   | 11,346     | 
|Stock warrants exercised                                    |  | 100,000      |  |   | 1,000  |                |   | 51,000     | 
|Net loss                                                    |  |             |  |   |       |                |   |           | 
|                                                            |  |              |  |   |        |                |   |            | 
|Balance, December 31, 2003                                  |  | 8,028,158    |  | $ | 80,281 |                | $ | 13,150,862 | 

The accompanying notes are an integral part of these consolidated financial statements.

F-5

---





MFIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



MFIC Corporation (MFIC or the Company), through its wholly-owned subsidiary, Microfluidics Corporation ("Microfluidics Division"), operates in one segment,
specializing in producing and marketing a broad line of proprietary fluid materials processing systems used for a variety of grinding, mixing, milling, and blending applications across a variety of
industries and for use in numerous applications within those industries. Microfluidizer materials processor systems are produced at the Microfluidics Division.



The Company's ability to continue operations is dependent upon access to financing, which is potentially impacted by the Company's ability to achieve future
compliance with financial covenants. It is expected by management that the Company will be in compliance with required covenants. Borrowings outstanding are secured by a collateral pledge of
substantially all of the assets of the Company.

Management
of the Company is executing plans for a return to profitability; however, there can be no assurance that the Company will be successful in implementing these plans.



The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.



As described in Note 4, in December 2003, the Company committed to a plan to sell substantially all the assets and associated liabilities of its
Morehouse-COWLES Division. As such, in accordance with generally accepted accounting principles, results of operations have been reclassified to reflect Morehouse-COWLES Division's operating results,
net of income taxes, as Discontinued Operations. Further, certain prior period balances have been reclassified to conform to the current period presentation.



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



Revenue from the sale of machines and spare parts is generally recognized upon shipment of the product or when the earnings process is complete. Rental income for
the lease of equipment is recognized on a straight-line basis over the term of the lease agreement. Rental income and equipment sales are classified in revenues in the consolidated
statement of operations.

F-6

---



The
Company has adopted Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 101,Revenue Recognition in Financial
Statements. The Company recognizes sales at the time of shipment of the system to the customer. Management believes the customer's post-delivery acceptance
provisions and installation are routine. The Company has never failed to successfully complete a system installation. Should an installation not be successfully completed, the contractual provisions
do not provide for forfeiture or refund. Installation costs are predictable and insignificant to the total purchase price. The Company has demonstrated a history of customer acceptance subsequent to
shipment and installation of these systems.



The Company considers all highly liquid securities with initial maturities of 90 days or less, at the time of acquisition, to be cash equivalents.



The Company maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. An estimate of uncollectable
amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, the customer's financial condition and current economic
trends. If the actual uncollected amounts significantly exceed the estimated allowance, then the Company's operating results would be significantly adversely affected.



Inventories consist of material, labor and manufacturing overhead and are stated at the lower of cost or net realizable value. Cost is determined on a
first-in, first-out basis. (FIFO)

The
Company periodically reviews quantities of inventory on hand and compares these amounts to expected usage of each particular product line. Reserves are established to record
provisions for slow moving inventories in the period in which it becomes reasonably evident that the item is not useable, salable or the net realizable value is less than cost.



The Company's property and equipment is recorded at cost. Depreciation is computed using the straight-line method, based upon useful lives of 3 to
7 years. Leasehold improvements are amortized using the straight-line method based upon the shorter of the estimated useful lives or remaining life of the lease. Expenditures for
maintenance and repairs are expensed as incurred. Upon retirement or sale of property and equipment, the cost of the disposed asset and the related accumulated depreciation are removed from the
accounts and any resulting gain, or loss is credited or charged to operations.



In accordance with Statements of Financial Accounting Standards ("SFAS") No. 144,Accounting for the Impairment or Disposal of
Long-Lived Assets("SFAS No. 144"), the Company reviews long-lived assets and all amortizing intangible assets for impairment whenever events or
changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the
operation to which the assets relate, to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then intangible assets are written down first,
followed by the other

F-7

---



long-lived
assets of the operation, to fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets.

Patents,
patent applications and rights, are stated at acquisition cost. Amortization is recorded using the straight-line method over the shorter of the legal lives or useful
life of the patents. Patents, licenses and other intangible assets are being amortized over a period of 3 to 17 years.



Goodwill represents the excess of cost over the fair value of net assets of a business acquired. The Company adopted SFAS No. 141, Business
Combinations("SFAS No. 141") in fiscal 2001 and SFAS No. 142,Goodwill and Other Intangible
Assets("SFAS No. 142") in fiscal year 2002. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after
June 30, 2001. SFAS No. 141 also specifies the criteria that intangible assets acquired in a purchase method business combination must meet in order to be recognized and reported apart
from goodwill.

SFAS
No. 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized, but instead be tested for impairment, at least annually. SFAS
No. 142 also requires that the intangible assets with definite lives be amortized over their respective estimated useful lives to their residual value and reviewed for impairment in accordance
with SFAS No. 144.



The Company charges research and development expenses to operations as incurred.



Basic and diluted net loss per share is presented in conformity with SFAS No. 128,Earnings per Share,for
all periods presented. In accordance with SFAS No. 128, basic and diluted net loss per common share was determined by dividing net income or loss applicable to common stockholders by the
weighted average number of common shares outstanding during the period. Options to purchase 1,929,662, 2,010,650, and 1,612,980 shares of common stock were outstanding for the years ended 2003, 2002,
and 2001, respectively. Basic and diluted net loss per share are $(.44) per share for 2003. Although there were dilutive shares of common stock for 2002, the basic and diluted net loss per share were
the same.



The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short term
nature of these accounts. The Company's bank debt, because it carries a variable interest rate, is stated at its approximate fair market value. The Company's subordinated debt bears interest at 10%,
which approximates fair market value.



The Company accounts for income taxes under SFAS No. 109,Accounting for Income Taxes.Under SFAS
No. 109, deferred tax assets or liabilities are computed based on the differences between the financial statement and income tax bases of assets and liabilities using the effective tax rates.
Deferred income tax expense or credits are based on changes in the asset or liability from period to period. The Company records a valuation allowance against any net deferred tax assets if it is more
likely than not that they will not be realized.

F-8

---





As allowed by SFAS No. 123,Accounting for Stock-Based Compensation, the Company has elected to account for
stock-based compensation at intrinsic value with disclosure of the effects of fair value accounting on net income and earnings per share on a pro forma basis. At December 31, 2003, the Company
had one stock incentive plan, which is described more fully in Note 10. The Company accounts for awards issued to employees under the plan under the recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to Employees,and the related interpretations. No stock-based
employee compensation cost is reflected in net income, as all options granted under the plan 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 income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123:

2003

2002

2001Net loss, as Reported

$
(3,450,434
)
$
(2,513,974
)
$
(525,186
)Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects


(113,509
)

(340,178
)

(318,438
)Pro forma net loss

$
(3,563,943
)
$
(2,854,152
)
$
(843,264
)Net loss per share:Basicas reported

$
0.44
)
$
(0.34
)
$
(0.07
)Dilutedas reported

$
(0.44
)
$
(0.34
)
$
(0.07
)Basicpro forma

$
(0.46
)
$
(0.38
)
$
(0.11
)Dilutedpro forma

$
(0.46
)
$
(0.38
)
$
(0.11
)


Stock
options granted to non-employees are accounted for in accordance with SFAS No. 123 and the Emerging Issues Task Force (EITF) Abstract
No. 96-18,Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services, and the related interpretations, which generally requires the value of options to be periodically remeasured and charged to expense as they are earned over the
performance period. Compensation related to stock appreciation rights and other variable stock option or award plans should be measured at the end of each period. The Company did not grant any stock
options to non-employees, excluding board members, during 2003, 2002, or 2001.



In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research
Bulletin No 51, Consolidated Financial Statements" (FIN 46). FIN 46 establishes accounting guidance for consolidation of variable interest entities that function to support the activities of the
primary beneficiary. FIN 46 applies to any business enterprise, both public and private, that has a controlling interest, contractual relationship or other business relationship with a variable
interest entity. The Company does not have any investments in or contractual relationships or other business relationships with any variable interest entity and therefore, based on present facts and
circumstances, the adoption of FIN 46 is not expected to have a material impact on the Company's consolidated financial position or results of its operations.

F-9

---



In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" (SFAS 150).
SFAS 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and
equity. SFAS 150 represents a significant change in practice in the accounting for a number of financial instruments, including mandatorily redeemable equity instruments and certain equity
derivatives that frequently are used in connection with share repurchase programs. The Company does not use such instruments in its share repurchase program. SFAS 150 is effective for all
financial instruments created or modified after May 31, 2003. Adoption of SFAS 150, based on present facts and circumstances, is not expected to have a material effect on the Company's
consolidated financial position or results of its operations.

Note 2    INDUSTRY SEGMENT, GEOGRAPHIC AND ENTERPRISE-WIDE REPORTING

SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information("SFAS No. 131"),
requires companies to report selected information about operating segments, as well as enterprise-wide disclosures about products, services, geographic areas and major customers. Operating
segments are determined based on the way management organizes its business for making operating decisions and assessing performance. The Company's chief decision-maker, as defined under SFAS
No. 131, is the chairman and chief executive officer. The Company has determined that it conducts its operations in one business segment: the development, manufacture, marketing and sale of
process and formulation equipment. The Company's sales are primarily to companies with processing needs in the chemical, pharmaceutical, food, cosmetic, and biotechnology industries. The Company
conducts its business primarily in the United States of America. The Company has less than 1% of total assets overseas. As a result, the financial information disclosed herein represents all of the
material financial information related to the Company's principal operating segment.

Approximate
sales to customers from continuing operations outside North America are broken out, by geographic foreign markets, as follows:

2003

2002

2001North America

$
5,337,000

$
6,462,000

$
7,444,000Asia


3,204,000


2,350,000


2,480,000Europe


1,919,000


702,000


1,286,000$
10,460,000

$
9,514,000

$
11,210,000


Two
customers accounted for 21% and 11% of the revenues from continuing operations, respectively, in 2003. Two customers accounted for 18% and 16% of the revenues from continuing
operations in 2002, respectively, and one customer accounted for 13% of the trade accounts receivable as of December 31, 2002. No customer accounted for more than 10% of the Company's revenues
in 2001. A reduction or delay in orders from these or other significant customers could have a material adverse effect on the Company's results of operations.

F-10

---



Note 3    INVENTORIES

The components of inventories are as follows at December 31:

2003

2002Raw materials

$
1,580,991

$
1,670,891Work in progress


80,439


298,649Finished goods


132,273


146,9221,793,703


2,116,462Less: Provision for obsolete inventory


110,000


50,000TOTAL

$
1,683,703

$
2,066,462


Note 4    ASSETS AVAILABLE FOR SALE

In the fourth quarter of 2003 the company determined that its Morehouse-COWLES Division was not strategic to the Company's on-going objectives and in
December 2003, management committed to a plan to sell substantially all the assets and associated liabilities of the division. Accordingly, the Company reported the division as a discontinued
operation in accordance with SFAS 144. The Consolidated financial statements have been reclassified to segregate the assets and associated liabilities available for sale and operating results
of these discontinued operations for all periods presented.

Assets
and Liabilities of discontinued operations are as follows:

December 31

2003

2002Assets available for saleAccounts receivable-trade

$
472,573

$
922,157Inventory


2,204,128


1,831,636Prepaid expense


35,517


34,808Net property and equipment


93,615


242,863Goodwill





2,100,000Total assets available for sale


2,805,833


5,131,464Less: Provision for loss on disposal


(1,422,715
)

Net assets available for sale


1,383,118


5,131,464Liabilities associated with assets available for saleAccounts payable and accrued expenses


457,139


563,824Customer deposits


203,956


88,189Liabilities associated with assets held for sale

$
661,095

$
652,013


F-11

---



Summary
Operating Results of the Discontinued Operations of Morehouse-COWLES are as follows:

2003

2002

2001Revenues

$
3,655,237

$
5,059,202

$
4,300,639Cost of Sales


2,601,957


3,626,407


3,268,271Gross Income


1,053,280


1,432,795


1,032,368Total Operating Expenses


3,740,490


1,754,837


1,525,163Loss from Discontinued Operations before cumulative effect of change in accounting principle and disposal


(2,687,210
)

(322,042
)

(492,795
)Loss on disposal of Discontinued Operations


(1,422,715
)Cumulative effect of change in accounting principle





(2,661,409
)

Loss from Discontinued Operations

$
(4,109,925
)
$
(2,983,451
)
$
(492,795
)


Upon
adoption of SFAS No. 142 in the first quarter of 2002, the Company recorded a one-time, noncash charge of $2,661,409 to reduce the carrying value of its goodwill.
Such charge is nonoperational in nature and is reflected as a cumulative effect of an accounting change pursuant to the SFAS No. 142 transition rules.

In
December 2003, in conjunction with the establishment of management's plan to sell the Morehouse-COWLES Division, the Company determined that the remaining goodwill of
$2,100,000 was fully impaired and accordingly charged to Discontinued Operations.

On
February 9, 2004, pursuant to an Asset Purchase Agreement (the "Asset Purchase Agreement") dated February 5, 2004 between MFIC Corporation ("MFIC") and a wholly owned
subsidiary of NuSil Corporation ("NuSil"), MFIC sold substantially all of the assets and selected liabilities of its Morehouse-COWLES Division (the "Division"), to NuSil. Other than NuSil's prior
purchases of products from the Division, there were no preexisting relationships between MFIC and NuSil.

The
assets of the Division that were sold included accounts receivable, furniture, fixtures and equipment, inventory and supplies, books and records, bids, contracts, prepaid expenses,
leases, intellectual property, goodwill, domain names and claims, all as described in the Asset Purchase Agreement (collectively, the "Assets"). In addition, certain rights and obligations arising
after February 9, 2004 under the Division's PacifiCare Group Health Insurance Policy were assigned. The Division's cash or cash equivalents on hand on February 9, 2004 were excluded from
the assets being sold. Under the Asset Purchase Agreement, the division's executory obligations under certain contracts and bids, and the Division's accounts payable as of February 9, 2004 in
the amount of $623,240, were assumed by NuSil.

The
purchase price (other than the assumption of accounts payable described in the preceding paragraph) paid under the Asset Purchase Agreement was $918,238. Of the purchase price,
$768,238
(the "Closing Cash") was paid in cash, $100,000 was paid in the form of a Promissory Note (the "Purchase Note") and $50,000 (the "Holdback Payment") was withheld for payment at a future date subject
to any purchase price adjustments and offsets, as provided for in the Asset Purchase Agreement.

The
Closing Cash was paid directly to PNC Bank, National Association ("PNC"), to be applied to MFIC's outstanding balance under MFIC's Revolving Credit Loan with PNC (the "Revolving
Credit Loan").

F-12

---



The
aforementioned Purchase Note bears interest at 5 percent per annum, is secured by the Assets pursuant to a Security Agreement dated February 5, 2004 (the "Security
Agreement") between the parties and is subject to certain offsets as provided in the Asset Purchase Agreement. Principal and interest on the Purchase Note are payable on February 9, 2005,
unless there is a claim for an offset as allowed for under the Asset Purchase Agreement, which claim might delay final payment of amounts due under the Purchase Note until final resolution of any such
claim under the procedures outlined in the Asset Purchase Agreement.

Pursuant
to the Asset Purchase Agreement, MFIC entered into a Noncompetition and Nonsolicitation Agreement, dated February 5, 2004, which limits MFIC's ability to compete with the
business of the Division for a period of five years.

Note 5    INTANGIBLES AND OTHER ASSETS

The Company purchased the rights and title of certain liposome and microemulsion technology devices from Arthur D. Little in 1985. The unamortized license fee and
patent are included in intangible assets and are being amortized using the straight-line method over the useful life of the patent, which is 17 years. In 1995, the Company
capitalized $96,680 of patent costs related to a cooperative research venture. Amortization of these assets charged to expense was $0 in 2003, $14,896 in 2002, and $24,576 in 2001. In 2001, the
Company capitalized $64,528 of costs related to the Multi-Stream Mixer Reactor patent, which is being amortized over a 17-year period, beginning in the last quarter of 2001. Amortization
of these costs was $3,800 in both 2003 and 2002, and $950 in 2001.

Costs
incurred in connection with the debt refinancing that occurred on February 28, 2000 are being amortized over three years, the initial term of the line of credit. The total
of such costs was approximately $207,000. Amortization of these costs amounted to $11,534 in 2003, and $69,204 in both 2002 and 2001, respectively.

Note 6    GOODWILL

In 1998, MFIC purchased substantially all of the assets and assumed certain liabilities of Epworth Manufacturing Company Inc. of South Haven, Michigan
(Epworth) and Morehouse-COWLES, Inc. of Fullerton, California (Morehouse-COWLES) pursuant to an Asset Purchase Agreement (the "Agreement").

In
accordance with the Agreement, MFIC paid the following as consideration for the purchase price: (i) $5,508,480 in cash, (ii) two subordinated promissory notes in the
aggregate principal amount of $800,000 (the Promissory Notes) and (iii) 900,000 shares of MFIC's restricted common stock, $0.01 par value per share, subject to the restrictions as defined. MFIC
also incurred approximately $500,000 in expenses. In addition, MFIC assumed approximately $1,930,000 in accounts payable and accrued liabilities. The acquisition had been accounted for under the
purchase method of accounting, and the Company recognized goodwill of $6,194,459 which was fully allocated to Morehouse-COWLES.

On
January 1, 2002, the Company adopted SFAS No. 142,Goodwill and Other Intangible Assets, which requires companies to
discontinue the amortization of goodwill and certain intangible assets with an indefinite useful life. Instead, SFAS No. 142 requires that goodwill and intangible assets deemed to have an
indefinite useful life be reviewed for impairment upon adoption of SFAS No. 142 and annually thereafter.

Under
SFAS No. 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. Upon adoption of SFAS No. 142 in the
first quarter of 2002, the Company recorded a one-time, noncash charge of $2,661,409 to reduce the carrying value of its goodwill. Such charge is nonoperational in nature and is reflected
as a cumulative effect of an accounting change in the accompanying consolidated statement of operations pursuant to the SFAS

F-13

---



No. 142
transition rules. The Company performed its annual impairment review during the fourth quarter of 2002, and determined that no impairment of goodwill had occurred since it had recorded
a one-time, non-cash charge of $2,661,409 in the first quarter of 2002.

In
December 2003, in conjunction with the establishment of management's plan to sell the Morehouse-COWLES Division, the Company determined that the remaining goodwill of
$2,100,000 was fully impaired and accordingly charged to operations.

Pursuant
to SFAS 142, the goodwill impairment charges of $2,661,409 and $2,100,000 have been classified in discontinued operations in the accompanying consolidated statements of
operations.

Note 7    DEBT

Long-term debt as of the following dates consisted of:

December 31,2003

2002Line of credit

$
2,425,613

$
2,681,98710% subordinated note payable to related party


81,250


156,250Term note payable


58,735


153,7392,565,598


2,991,976Less current portion


(2,559,348
)

(2,851,991
)Long term debt, net of current portion

$
6,250

$
139,985




The subordinated note is payable to Lake Shore Industries Inc, a related party as defined and disclosed in note 13 of the financial statements.



In October, 2000, the Company entered into a settlement agreement related to a warranty claim dating back to 1998 for the Epworth Mill Division pursuant to which
the Company paid $100,000 upon execution of the agreement, and executed a promissory note for $350,000 payable two years from the execution date, with interest payable quarterly in arrears at 10% per
annum. The Company paid off the balance of this note in December, 2002.



On February 28, 2000, the Company entered into a revolving credit and term loan agreement with National Bank of Canada providing the Company with a
$4,475,000 three-year revolving credit and term loan facility. The Credit Facility was comprised of: (i) a $4 million three year revolving line of credit (Revolving Credit
Line) with advances thereunder bearing interest at an interest rate equal to the prime rate (the Prime Rate for United States borrowings from the National Bank of Canada as publicly announced from
time to time) plus one-half percent (0.50%). All borrowings under the Revolving Credit Line were evidenced by a $4 million promissory note having a maturity date of
February 28, 2003 (the Revolving Note), and (ii) a $475,000 term promissory note, amortized over a five-year period but having a maturity date of February 28, 2003 and
bearing interest at an interest rate equal to the Prime Rate (4.75% at December 31, 2001) plus three quarters of one percent (0.75%). Loans under the Credit Facility were secured by a
collateral pledge to the Lender of substantially all the assets of the Company and its subsidiaries. The Company's Microfluidics Corporation subsidiary guaranteed the Company's obligations to the
Lender under the Credit Facility. The Company also pledged to the Lender all shares of Microfluidics Corporation owned by the Company.

F-14

---



After
review of the results as of and for the quarter ended March 31, 2001, the Company notified the National Bank of Canada that it was in violation of the tangible net worth and
liabilities to worth ratio covenants contained in the Credit Facility for the quarter ended March 31, 2001. On April 13, 2001, the Company received a waiver of these violations from the
National Bank of Canada, but is required to meet all covenant requirements thereafter. As a result of the waiver and management's expectations of future compliance, the non-current portion
of the term Promissory Note was classified as a non-current liability, as of December 31, 2000.

On
January 16, 2002, the United States portion of National Bank of Canada's operations and its loan portfolio was sold to PNC Bank, N.A. On February 19, 2003, the Company
and PNC Bank. N.A. entered into an extension of the loan for an additional year, until February 28, 2004.

At
December 31, 2002, the Company was in violation of the net income and debt service coverage covenants. At December 31, 2001, the Company was not in compliance with the
tangible net worth, liabilities to worth ratio, net income covenants, and the debt service covenant. The Company received a waiver of these violations from the Lender for both years, but is required
to meet all covenant requirements thereafter. On March 29, 2002, the Company and the Lender agreed on a revised set of covenants for fiscal 2002 under a second amendment to the original
agreement. On February 19, 2003, the Company and the Lender entered into a third amendment to the original agreement extending the credit facility for an additional year until
February 28, 2004, with no change to the revised covenants agreed upon under the agreement of March 29, 2002.

On
February 6, 2004 the Company and PNC Bank, N.A ("PNC") entered into a Fourth Amendment and Waiver to Revolving Credit and Term Loan Agreement permitting the sale of the assets
of the Company's Morehouse-COWLES Division in exchange for payment to PNC of all monies received by the Company in connection with such sale and assignment to PNC of deferred payments and a promissory
note from the purchase issued as part of the purchase price. On March 3, 2004, the outstanding loan balance was repaid from the proceeds of a new senior debt financing from Banknorth, N.A.

Due
to the subjective acceleration clause, and the lock-box arrangement, the revolving credit line was classified as a current liability in the consolidated balance sheet. At
December 31, 2003, the outstanding balance on the Revolving Credit Line was $2,425,613, having an interest rate of 5.5%. The balance outstanding on the term loan was $58,735, at an interest
rate of 5.75%.

At
December 31, 2003, the Company did not meet the net income covenant which, according to the terms of the lending agreement, would have required a waiver from its previous
lender, PNC. However, in conjunction with the subsequent credit facility it obtained from the new lender, Banknorth, N.A., no waiver was required from the previous lender.

On
March 3, 2004, the Company and its Microfluidics Corporation subsidiary, as co-borrowers, entered into a revolving credit and term loan agreement with Banknorth,
N.A. (the "Lender") providing the Company with a $2,000,000 demand revolving credit and four year term loan facility (the "Credit Facility"). The Credit Facility was comprised of (i) a
$1 million demand revolving line of credit (Revolving Credit Line) with advances thereunder bearing interest at an interest rate equal to the prime rate (the Prime Rate for United States
borrowings from Banknorth, N.A. as publicly announced from time to time). All borrowings under the Revolving Credit Line were evidenced by a $1 million demand promissory note (the "Revolving
Note"), and (ii) a $1,000,000 term promissory note, amortized over a four year period but having a maturity date of March 3, 2008 and bearing interest at an interest rate equal to the
Federal Home Loan Bank Classic Rate at March 4, 2004 plus two and one-half percent (2.50%). Loans under the Credit Facility are secured by a collateral pledge to the Lender of
substantially all the assets of the Company and its subsidiaries. The Company is required to meet two covenants on an annual (calendar) basis as of December 31 of a given year. (i) The
Company's senior debt may not be more than four times the amount of its tangible capital base, and (ii) its debt service coverage ratio may not be less than 1.20 to 1.

F-15

---



Note 8    EMPLOYEE BENEFIT PLANS

The Company offers a 401(k) profit-sharing plan (the 401K Plan), to its employees. All Company and related entity employees who are eighteen years of age and have
completed one hour of service are eligible to participate in the 401K Plan. Employees may contribute from 1% to 20% of their compensation. The Company's contribution is discretionary, with
contributions made from time to time as management deems advisable. The Company has made no matching contributions during 2003, 2002, and 2001. The Company also instituted a cafeteria plan in 1992,
giving the employees certain pre-tax advantages on specific payroll deductions.

Note 9    INCOME TAXES

At December 31, 2003, the Company had net operating loss and research tax credit carryforwards of approximately $4,650,000 and $171,000, respectively, for
financial reporting purposes, which may be used to offset future taxable income.

The
components of the net deferred tax asset with the approximate income tax effect of each type of carryforward, credit and temporary difference are as follows:

December 31,2003

2002Operating loss carryforwards

$
1,757,000

$
2,048,000Tax credit carryforwards


171,000


171,000Temporary differences


2,332,000


(22,000
)4,260,000


2,197,000LessValuation allowance


(4,260,000
)

(2,197,000
)Net deferred tax asset

$


$



The
Company has recorded a full valuation allowance against its deferred tax assets because, based on the weight of available evidence, the Company believes it is more likely than not
that the deferred tax assets will not be realized in the near future. The carryforwards expire from 2003 through 2021 and are subject to review and possible adjustment by the Internal Revenue Service.
The Internal Revenue Code contains provisions that may limit the net operating loss and research tax credit carryforwards in the event of certain changes in the ownership interests of significant
stockholders.

Note 10    STOCKHOLDERS' EQUITY

The Company adopted the 1988 Stock Plan (the Plan) as the successor plan to the 1987 Stock Plan, which, as amended at the 2002 stockholders' meeting, authorizes
the grant of Stock Options for up to 3,500,000 shares of common stock and the 1989 Non-Employee Director Stock Option Plan which, as amended at the 1996 stockholders' meeting, authorizes
the grant of nonqualified stock options for up to 500,000 shares of common stock.

F-16

---





Options granted under the Plans vest over a three-to-five-year period and expire
5 - 10 years from the grant date. At December 31, 2003, 1,206,898 shares were available for future grant under the Plans. Information with respect to activity
under the Plans are as follows:

Number of Shares

Weighted Average
Exercise PriceOutstanding, December 31, 2000

1,761,575

$
0.94Granted

328,500


0.81Exercised

(24,375
)

0.31Canceled

(452,720
)

0.98Outstanding, December 31, 2001

1,612,980


0.88Granted

532,045


0.52Exercised

(19,375
)

0.31Canceled

(115,000
)

0.60Outstanding, December 31, 2002

2,010,650

$
0.90Granted

257,409


0.47Exercised

(186,377
)

0.78Canceled

(152,020
)

1.13Outstanding, December 31, 2003

1,929,662

$
0.74Exercisable, December 31, 2001

878,803

$
1.06Exercisable, December 31, 2002

1,093,972

$
1.01Exercisable, December 31, 2003

1,102,020

$
0.96


The
following table summarizes information relating to outstanding and exercisable stock options as of December 31, 2003:

|Outstanding   |  |           |  |    
|------------- |  | --------- |  | ---
|
|
|
|$0.31 to 1.24 |  | 1,929,662 |  | 6.5
|              |  |           |  |    



SFAS No. 123,Accounting for Stock-Based Compensation, requires the measurement of the fair value of stock
options to be included in the statement of income or disclosed in the notes to the financial statements. The Company has determined that it will continue to account for stock-based compensation for
employees under APB Opinion No. 25,Accounting for Stock issued to Employees, and elect the disclosure-only alternative under No.
SFAS 123.

The
Company has computed the pro forma disclosures required under SFAS No. 123 for its stock compensation plan for employees during the years ended December 31, 2003, 2002
and 2001 using the

F-17

---



Black-Scholes
option pricing model under the fair value method as prescribed by SFAS No. 123. The assumptions used for the years ended December 31, 2003, 2002 and 2001 are as follows:

December 31,2003

2002

2001Risk-free interest rates

4.75
%
4.36
%
5.25
%Expected lives

5 years

5 years

5 yearsExpected volatility

164
%
75
%
197
%Dividend yield

0
%
0
%
0
%


Stock
or other equity-based compensation for nonemployees must be accounted for under the fair value method as required by SFAS No, 123 and Emerging Issues Task Force
No. 96-18,Accounting for Equity Instruments That Are Issued To Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services, and the related interpretations. Under this method, the equity-based instrument is valued at either the fair value of the consideration received or the fair value of
the equity instruments issued, whichever is more reliably measurable. The measurement date is generally the vesting date for nonemployees. Compensation related to stock appreciation rights and other
variable stock option or award plans should be measured at the end of each period. The resulting noncash expense is recorded in the statements of operations over the vesting period of the stock. The
Company did not grant any options to non-employees, excluding board members, in 2003, 2002 or 2001.



On September 23, 1999, the Chief Executive Officer of the Company, Irwin J. Gruverman, was granted warrants to purchase up to 100,000 shares of the
Company's common stock at a price of $0.52 per share, having an expiration date of July 2, 2004. The warrants were exercised on November 25, 2003.



The Company has an employee stock purchase plan (the Purchase Plan). Under the Purchase Plan, participants are granted options to purchase the Company's common
stock twice a year at the lower of 85% of market value at the beginning or end of each period. Calculation of the number of options granted, and subsequent purchase of these shares, is based upon
voluntary payroll deductions during each six-month period. The number of options granted to each employee under this plan is limited to a maximum amount of 1,000 shares for each
six-month period. The number of shares issued pursuant to this plan totaled 36,717, 29,207, and 30,658, in 2003, 2002, and 2001, respectively.

Note 11    COMMITMENTS

The Company leases its facilities under non-cancelable operating leases expiring through August 2006. Future minimum rental payments under the
operating leases at December 31, 2003 are approximately as follows:

2004

$
341,0002005

$
327,0002006

$
138,000Total Lease Payments

$
806,000


Rent
expense for 2003, 2002, and 2001 was approximately $439,000, $402,000, and $415,000, respectively. A portion of the space is sublet to non-affiliated company under a
tenant at will arrangement for a total of $12,000 per annum.

F-18

---



Note 12    RELATED PARTY TRANSACTIONS

During 2001, the Company and G&G Corporation (G&G), an entity controlled by Mr. Gruverman, the Company's Chairman, entered into an arrangement whereby G&G
reimbursed the Company for certain administrative expenses incurred for services performed by the Company. The Company was reimbursed approximately $0, and $30,407 by G&G during 2002 and 2001,
respectively. At both December 31, 2003 and 2002, G&G owed the Company $0.

As
discussed in Notes 6 and 13, the Company owed the former Principals of Morehouse and Epworth $81,250, $156,250, and $237,500 at December 31, 2003, 2002, and 2001, respectively.
Interest capitalized on the $300,000 note in connection with the Settlement Agreement discussed in Note 13 amounted to $88,750 and is being amortized over 5 years. Total payments in 2003
and 2002 were $12,340 and $21,989, respectively.

Note 13    SETTLEMENT AGREEMENT, DEBT RESTRUCTURING AND REFINANCING

On December 20, 1999 the Company signed an agreement in principle (the Agreement In Principle) with J.B. Jennings and Bret A. Lewis, the former owners of
the Epworth Mill and Morehouse-COWLES businesses (the Sellers), Lake Shore Industries, Inc., and JLJ Properties, Inc., entities owned and controlled by the Sellers. The Agreement In
Principle sets forth understandings among the parties concerning restructuring of the Company's subordinated debt and resolution of various disputes. On January 17, 2000 a definitive settlement
agreement incorporating these subject matters was executed between the parties (the Settlement Agreement). In connection with the closing of the Credit Facility, and pursuant to a Settlement Agreement
dated January 17, 2000 with the Company's subordinated debt holders, the subordinated debt of the Company was restructured in the following manner. The outstanding August 14, 1998
$500,000 subordinated promissory note, having a remaining $475,000 principal balance together with accrued interest at the Closing Date in the approximate amount of $77,500, and accrued interest on
the August 14, 1998 $300,000 subordinated note were converted to 500,000 shares of MFIC restricted common stock (the Conversion Shares). The fair market value of the Company's Common Stock on
the date of the Agreement In Principle was $0.31 per share. MFIC was granted the right for a three-year period to repurchase the Conversion Shares at a purchase price of $1.75 per share.
The August 14, 1998 $300,000 subordinated note was replaced with a new $300,000 subordinated promissory note dated February 28, 2000 (the 2000 Subordinated Note). The 2000 Subordinated
Note has a maturity date of February 28, 2005 and bears interest at a rate of ten percent (10%) per annum. The note is payable interest only in its first year and then is payable in equal
quarterly installments of principal together with outstanding interest thereon until maturity.

F-19

---



Note 14    QUARTERLY RESULTS OF OPERATIONS

Summarized unaudited quarterly financial data are as follows:

|                                                                                                     |  | Fiscal 2003 Quarters |          
|---------------------------------------------------------------------------------------------------- |  | -------------------- | ---------
|
|Revenues                                                                                             |  | $                    | 2,949,677
|Gross income                                                                                         |  |                      | 1,491,923
|Net income (loss) from continuing operations                                                         |  |                      | 405,571  
|Loss from discontinued operations including loss on disposal of $1,422,715 in Fourth Quarter of 2003 |  |                      | (215,899 
|Net income (loss)                                                                                    |  |                      | 189,672  
|Basic net income (loss) per share from continuing operations:                                        |  | $                    | .05      
|Basic net loss per share from discontinued operations                                                |  | $                    | (.03     
|Basic, as reported                                                                                   |  | $                    | .03      
|Diluted net income (loss) per share from continuing operations                                       |  | $                    | .05      
|Diluted net loss per share from discontinued operations                                              |  | $                    | (.03     
|Diluted, as reported                                                                                 |  | $                    | .03      

|                                                                 |  | Fiscal 2002 Quarters |           
|---------------------------------------------------------------- |  | -------------------- | ----------
|
|Revenues                                                         |  | $                    | 2,739,707 
|Gross income                                                     |  |                      | 1,442,428 
|Net income (loss) continuing operations                          |  |                      | 235,659   
|(Loss) income from discontinued operations                       |  |                      | (2,796,821
|Net (loss) income                                                |  |                      | (2,561,162
|Basis net income (loss) per share:                               |  |                      |           
|Net income (loss) per share from continuing operations           |  | $                    | .03       
|Basic net (loss) income per share from discontinued operations   |  | $                    | (.38      
|Basic, as reported                                               |  | $                    | (.33      
|Diluted net income (loss) per share:                             |  |                      |           
|Net income (loss) per share from continuing operations           |  | $                    | .03       
|Diluted net (loss) income per share from discontinued operations |  | $                    | (.38      
|Diluted, as reported                                             |  | $                    | (.33      

Note 15    SUBSEQUENT EVENTS

On March 31, 2004, the Company completed a private placement offering of investment units (each unit consisting of one share of common stock and a
3-year warrant to purchase an additional 1/2 share of common stock). A total of 1,426,616 units were sold, yielding gross proceeds of $3,566,540. The units were priced at
$2.50 and the associated warrants are exercisable at $3.05. Additionally, the placement agent for the offering received 5-year warrants to purchase 213,992 shares of common stock at an
exercise price of $3.20 per share.

F-20

---



PART III

Item 11.    EXECUTIVE COMPENSATION

|                                                                                                        |  | Annual Compensation |  | Long-Term Compensation
|------------------------------------------------------------------------------------------------------- |  | ------------------- |  | ----------------------
|
|Irwin J. Gruverman
Chief Executive Officer, Chairman of
the Board of Directors, Treasurer and Secretary |  | 2003
2002
2001      |  | $$$                   
|                                                                                                        |  |                     |  |                       
|Robert P. Bruno
President, Chief Operating Officer,
and Vice President Sales/Marketing                  |  | 2003
2002
2001      |  | $$$                   

---

Aggregated Option Exercises and Fiscal Year-end Values:

The following table summarizes for each of the named executive officers the number of unexercised options that each of them held at December 31, 2003. None
of the named executive officers held any stock appreciation rights or exercised any stock options or stock appreciation rights during 2003. The value of unexercised
in-the-money options at the fiscal year end is the difference between the exercise price and the fair market value of the underlying stock on December 31, 2003 the last
business day of the fiscal year. The closing price of the Company's Common Stock as quoted in the Over-the-Counter Bulletin Board on such date was $2.25.

|                   |  | Number of Securities
Underlying Unexercised
Options at Fiscal Year End |  | Value of Unexercised In-The-Money
Options at Fiscal Year End(1)
|------------------ |  | ---------------------------------------------------------------------- |  | ---------------------------------------------------------------
|
|
|Irwin J. Gruverman |  | 305,000                                                                |  | 210,000                                                        
|Robert P. Bruno    |  | 213,750                                                                |  | 158,750                                                        

---

Compensation of Directors:

Commencing on January 1, 2000, directors, with the exception of Mr. Gruverman, received $8,000 annually, payable in equal quarterly installments,
for all meetings of the Board of Directors and any committee thereof for which they attended and are reimbursed for reasonable expenses incurred in attending such meetings. Mr. Little holds
options to purchase 37,500 shares of Common Stock at an average exercise price of $0.60 per share. Mr. Cortina holds options to purchase 37,500 shares of Common Stock at an average exercise
price of $.60 per share. Mr. Paslawski holds options to purchase 47,500 shares of Common Stock at an exercise price of $0.78 per share. Mr. Roy holds options to purchase 47,500 shares of
Common Stock at an exercise price of $0.78 per share. Messrs. Little, Cortina, Paslawski and Roy were granted the foregoing options pursuant to the 1989 Non-Employee Director Stock
Option Plan (the "1989 Plan"), which automatically grants to each non-employee director of the Company who holds office at the beginning of each fiscal year an option to purchase

---



7,500
shares of the Company's Common Stock. Upon any non-employee director's first appointment to the Board of Directors, that director receives an automatic grant of an option to purchase
25,000 shares of the Company's Common Stock. Options granted pursuant to the 1989 Plan vest in four equal installments commencing six months from the date of grant and thereafter on the next three
anniversaries of the date of grant.

Employment Agreements:

The Company entered into a letter agreement dated December 31, 2003 with Irwin J. Gruverman, the Company's Chief Executive Officer, Chairman of the Board,
Treasurer and Secretary, pursuant to which Mr. Gruverman's compensation for the 2004 fiscal year was established at $97,000, with Mr. Gruverman being eligible to participate in a pool
for bonus compensation under certain circumstances.

PART IV

Item 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1.    Consolidated Financial Statements.

The
following Consolidated Financial Statements are included in Item 8:

PageReports of Independent Auditors

F-1Consolidated Balance Sheets as of December 31, 2003 and 2002

F-2Consolidated Statements of Operations for the years ended December 31, 2003, 2002, and 2001

F-3Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002, and 2001

F-4Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2003, 2002, and 2001

F-5Notes to Consolidated Financial Statements

F-6


List of Exhibits

|Exhibit
Number |     | Description of Exhibit                                                                                                                                                                                                                                                             
|-------------- | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3              | (a) | Certificate of Incorporation for the Company, as amended (filed as Exhibit 2A to Registration Statement No. 0-11625 on Form 8-A and as Exhibit 3.1(a) to the Company's Report on Form 10-Q for the quarterly period ended
September 30, 1999 and incorporated herein by reference).
|3              | (b) | Amended and Restated By-Laws for the Company (filed as Exhibit 3.3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and incorporated herein by reference).                                                                               
|4.2            |     | Form of Warrant issued to placement agent under the Placement Agent Agreement attached as Exhibit 10.62                                                                                                                                                                            
|4.3            |     | Form of Warrant issued to investors in the private placement described in the Placement Agency Agreement attached as Exhibit 10.62                                                                                                                                                 
|10.1           |     | 1987 Stock Plan (filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by reference).                                                                                                             
|10.2           |     | 1988 Stock Plan (filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by reference).                                                                                                             
|               |     |                                                                                                                                                                                                                                                                                    

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|10.3  |  | 1989 Non-Employee Directors Stock Option Plan (filed as Exhibit 10.1 to the Company's registration statement on Form S-8 filed October 22,1996 and incorporated herein by reference).                                                                                                                                                                                                                                                           
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.4  |  | Lease for 30 Ossipee Road, Newton, Massachusetts dated May 23, 1997 between Microfluidics International Corporation and J. Frank Gerrity, Trustee of 1238 Chestnut Street Trust under Declaration of Trust dated May 23, 1969,
 recorded with Middlesex South Registry of Deeds in Book 11682, Page 384 (filed as Exhibit 3.10(a) to the Company's form 10-Q for the quarterly period ended June 30, 1997 and incorporated herein by reference).
|10.5  |  | Letter of Understanding between Microfluidics International Corporation and Worcester Polytechnic Institute dated as of April 3, 1992 (filed as Exhibit 3.10(f) to the Company's Form 10-K for the fiscal year ended December
31, 1993 and incorporated herein by reference).                                                                                                                                                                   
|10.6  |  | Agreement between Microfluidics International Corporation and Catalytica, Inc. dated as of October 18, 1993 (filed as Exhibit 3.10(g) to the Company's Form 10-K for the fiscal year ended December 31, 1993 and incorporated
herein by reference) with amendments dated September 1, 1994 and March 31, 1995.                                                                                                                                  
|10.7  |  | Amendment to agreement dated September 1, 1994 between Microfluidics International Corporation and Catalytica, Inc. dated as of October 18, 1993 (filed as Exhibit 3.10(g) to the Company's Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by reference).                                                                                                                                                       
|10.8  |  | Amendment to agreement dated March 31, 1995 between Microfluidics International Corporation and Catalytica, Inc. dated as of October 18, 1993 (filed as Exhibit 3.10(g) to the Company's Form 10-K for the fiscal year ended
December 31, 1993, and incorporated herein by reference)                                                                                                                                                           
|10.9  |  | License Agreement among Microfluidics International Corporation, Worcester Polytechnic Institute and Catalytica, Inc. dated as of October 18, 1993 (filed as Exhibit 3.10(h) to the Company's Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by reference).                                                                                                                                                      
|10.10 |  | Amendment to agreement dated September 1, 1994 between Microfluidics International Corporation and Catalytica, Inc. dated as of October 18, 1993 (filed as Exhibit 3.10(g) to the Company's Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by reference).                                                                                                                                                       
|10.11 |  | Letter, dated August 15, 1995, from Microfluidics International Corporation to Michael T. Rumley. (filed as Exhibit 3.10(j) to the Company's Form 10-K for fiscal year ended December 31, 1995 and incorporated herein by
reference).                                                                                                                                                                                                           
|10.12 |  | Letter, dated December 31, 1995 from Microfluidics International Corporation to Irwin J. Gruverman. (filed as Exhibit 3.10(k) to the Company's Form 10-K for fiscal year ended December 31, 1996 and incorporated herein by
reference).                                                                                                                                                                                                         
|10.13 |  | Warrant for the Purchase of Shares of Common Stock, dated July 14, 1993, in favor of Ladenburg, Thalmann & Co. Inc. (filed as Exhibit 3.10(l) to the Company's Form 10-K or fiscal year ended December 31, 1996 and
incorporated herein by reference).                                                                                                                                                                                          
|10.14 |  | Letter, dated December 31, 1996, from Microfluidics International Corporation to Irwin J. Gruverman. (filed as Exhibit 3.10(o) to the Company's Form 10-K for fiscal year ended December 31, 1996 and incorporated herein by
reference).                                                                                                                                                                                                        
|10.15 |  | Agreement between Microfluidics International Corporation and Catalytica, Inc. dated January 1, 1995 regarding participation in and management of the Advanced Technology Program (ATP). (filed as Exhibit 3.10(p) to the
Company's Form 10-K for fiscal year ended December 31, 1996 and incorporated herein by reference).                                                                                                                    
|10.16 |  | Consulting Agreement with James Little. (filed as Exhibit 3.10(q) to the Company's Form 10-K for fiscal year ended December 31, 1996 and incorporated herein by reference).                                                                                                                                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|10.17 |  | Supplemental Agreement between Catalytica Advanced Technologies, Inc. and Microfluidics International Corporation dated December 31, 1997. (filed as Exhibit 3.10(r) to the Company's Form 10-k for fiscal year ended
December 31, 1997, and incorporated herein by reference)          
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18 |  | Letter dated December 31, 1997, from Microfluidics International Corporation to Irwin J. Gruverman and G & G Diagnostics Corp. (filed as Exhibit 3.10(s) to the Company's Form 10-K for fiscal year ended December 31,
1997, and incorporated herein by reference).                     
|10.19 |  | 1988 Stock Plan as amended (filed as Exhibit 10(a) to the Company's Form 10-Q for the quarterly period ended March 31, 1997 and incorporated herein by reference.                                                                                                                       
|10.20 |  | Asset Purchase Agreement, dated as of June 19, 1998, by and among the Company, Epworth Manufacturing Company and Morehouse-COWLES, Inc.(filed as Exhibit 2.1 to Schedule 13D of Bret A. Lewis, File No. 005-35850, and
incorporated herein by Reference).                               
|10.21 |  | Stockholders Agreement, dated August 14, 1998, by and among the Company and J.B. Jennings and Bret A. Lewis (filed as exhibit 2.2 to Schedule 13D of Bret A. Lewis, File No. 005-35850, and incorporated herein by
reference.                                                           
|10.22 |  | $500,000 Subordinated Promissory Note issued by the Company to Epworth Manufacturing Company (filed as exhibit 99.2 to the Company's Form 8-K on August 27, 1998, File No. 000-11625, and incorporated herein by
reference).                                                            
|10.23 |  | $300,000 Subordinated Promissory Note issued by the Company to Epworth Manufacturing Company (filed as exhibit 99.2 to the Company's Form 8-K on August 27, 1998, File No. 000-11625, and incorporated herein by
reference).                                                            
|10.24 |  | Revolving credit loan between Comerica Bank and the Company dated August 12, 1998 (filed as Exhibit 10.1 to the Company's form 10-Q for the quarterly period ended September 30, 1998 and incorporated herein by
reference).                                                            
|10.25 |  | Letter dated December 31, 1998 from Microfluidics International Corporation To Irwin J. Gruverman. (Filed as exhibit 3.10(2) to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1998 and
incorporated herein by reference.)                                 
|10.26 |  | Revolving Credit and Term Loan Agreement among MFIC Corporation and National Bank of Canada dated February 28, 2000. (Filed as exhibit 10.26 to the Company's Annual Report on Form 10-K for fiscal year ended December 31,
2000, and incorporated herein by reference.)                
|10.27 |  | Revolving Credit Note of the Company in favor of National Bank of Canada in the amount of $4,000,000.00 dated February 28, 2000. (Filed as exhibit 10.27 to the Company's Annual Report on Form 10-K for fiscal year ended
December 31, 2000, and incorporated herein by reference.)    
|10.28 |  | Term Note of the Company in favor of National Bank of Canada in the amount of $475,000.00 dated February 28, 2000. (Filed as exhibit 10.28 to the Company's Annual Report on Form 10-K for fiscal year ended December 31,
2000, and incorporated herein by reference.)                  
|10.29 |  | Security Agreement of the Company in favor of National Bank of Canada dated February 28, 2000. (Filed as exhibit 10.29 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2000, and incorporated
herein by reference.)                                      
|10.30 |  | Trademark and Trademark Applications Security Agreement of the Company in favor of National Bank of Canada, dated February 28, 2000. (Filed as exhibit 10.30 to the Company's Annual Report on Form 10-K for fiscal year
ended December 31, 2000, and incorporated herein by reference.)
|      |  |                                                                                                                                                                                                                                                                                         

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|10.31 |  | Patent and Patent Applications Security Agreement of the Company in favor of National Bank of Canada, dated February 28, 2000. (Filed as exhibit 10.31 to the Company's Annual Report on Form 10-K for fiscal year ended
December 31, 2000, and incorporated herein by reference.)                                                                                                                                                                                                 
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.32 |  | Unlimited Guaranty of Microfluidics Corporation in favor of National Bank of Canada Dated February 28, 2000. (Filed as exhibit 10.32 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2000, and
incorporated herein by reference.)                                                                                                                                                                                                                   
|10.33 |  | Stock Pledge Agreement between the Company and National Bank of Canada dated February 28, 2000. (Filed as exhibit 10.33 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2000, and incorporated
herein by reference.)                                                                                                                                                                                                                                
|10.34 |  | Subordination Agreement among the Company, Lake Shore Industries, Inc. and National Bank of Canada dated as of February 28, 2000. (Filed as exhibit 10.34 to the Company's Annual Report on Form 10-K for fiscal year ended
December 31, 2000, and incorporated herein by reference.)                                                                                                                                                                                              
|10.35 |  | Subordinated Promissory Note on the Company in favor of Lake Shore Industries, Inc. in the amount of $300,000.00 dated February 28, 2000. (Filed as exhibit 10.35 to the Company's Annual Report on Form 10-K for fiscal year
ended December 31, 2000, and incorporated herein by reference.)                                                                                                                                                                                      
|10.36 |  | Forbearance Agreements with Comerica. (Filed as exhibit 10.36 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2000, and incorporated herein by reference.)                                                                                                                                                                                                                                                                                          
|10.37 |  | Settlement Agreement, dated January 17, 2000 by and among the Company, Bret A. Lewis, J. B. Jennings, Lake Shore Industries, Inc., and JLJ Properties, Inc., with $300,000 Subordinated Promissory Note dated February 28,
2000, issued by the Company to Lake Shore Industries, Inc. (FKA Epworth Manufacturing Company, Inc). (Filed as exhibit 10.37 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2000, and incorporated herein by
reference.)
|10.38 |  | Letter, dated December 31, 1999, from MFIC Corporation to Irwin J. Gruverman and G&G Diagnostics Corp. (Filed as exhibit 10.38 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2000, and
incorporated herein by reference.)                                                                                                                                                                                                                         
|10.39 |  | Letter, dated December 31, 1999, from MFIC Corporation to Irwin J. Gruverman. (Filed as exhibit 10.39 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2000, and incorporated herein by
reference.)                                                                                                                                                                                                                                                  
|10.40 |  | First Amendment to Revolving Credit and Term Loan Agreement between the Company and National Bank of Canada dated March 30, 2000. (Filed as exhibit 10.40 to the Company's Annual Report on Form 10-K for fiscal year ended
December 31, 2000, and incorporated herein by reference.)                                                                                                                                                                                              
|10.41 |  | Lease between ABB and Microfluidics dated April 14, 2000 for space at Lampertheim, Germany. (Filed as exhibit 10.41 to the Company's Annual Report on Form 10-K for fiscal year                                                                                                                                                                                                                                                                                                    
|10.42 |  | Security Agreement between MFIC Corporation and J.M. Huber Corporation dated October 18, 2000. (Filed as exhibit 10.42 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2000, and incorporated
herein by reference.)                                                                                                                                                                                                                                 
|10.43 |  | Settlement agreement between MFIC Corporation and J.M. Huber Corporation dated December 18, 2000. (Filed as exhibit 10.43 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2000, and
incorporated herein by reference.)                                                                                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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|10.44 |  | Letter, dated December 31, 2000, from MFIC Corporation to Irwin J. Gruverman and G&G Diagnostics Corporation. (Filed as exhibit 10.45 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2000,
 and incorporated herein by reference.)                                                                                                                                                                                                    
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.45 |  | Letter, dated December 31, 2000, from MFIC Corporation to Irwin J. Gruverman. (Filed as exhibit 10.46 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2000, and incorporated herein by
reference.)                                                                                                                                                                                                                                     
|10.46 |  | Lease for 30 Ossipee Road, Newton, Massachusetts dated October 19, 2001, between Microfluidics International Corporation and King Real Estate Corp., Trustee of 1238 Chestnut Street Trust under Declaration of Trust dated
May 23, 1969, recorded with Middlesex South Registry of Deeds in Book 11682, Page 384. (Filed as Exhibit 10.47 to the Company's Annual Report on Form 10-K for fiscal year ended December 21, 2001, and incorporated herein by reference.)
|10.47 |  | Consulting agreement with Vincent Cortina dated January 2, 2002. (Filed as Exhibit 10.48 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2001, and incorporated herein by reference.)                                                                                                                                                                                                                                                  
|10.48 |  | Letter dated December 31, 2001 from MFIC Corporation to Irwin J. Gruverman. (Filed as Exhibit 10.49 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2001, and incorporated herein by
reference.)                                                                                                                                                                                                                                       
|10.49 |  | Second Amendment to Revolving Credit and Term Loan Agreement between the Company and PNC Bank, N.A. dated March 29, 2002. (Filed as Exhibit 10.50 to the Company's Annual Report on Form 10-K for fiscal year ended December
31, 2001, and incorporated herein by reference.)                                                                                                                                                                                         
|10.50 |  | 1986 Employee Stock Purchase Plan as Amended. (Filed as Exhibit 10.51 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2001, and incorporated herein by reference.)                                                                                                                                                                                                                                                                     
|10.51 |  | 1988 Stock Plan as Amended. (Filed as Exhibit 10.52 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2001, and incorporated herein by reference.)                                                                                                                                                                                                                                                                                       
|10.52 |  | Letter dated December 31, 2002 from MFIC Corporation to Irwin J. Gruverman. (Filed as Exhibit 10.53 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2002, and incorporated herein by
reference.)                                                                                                                                                                                                                                       
|10.53 |  | Third Amendment to Revolving Credit and Term Loan Agreement between the Company and PNC Bank N.A. dated February 19, 2003. (Filed as Exhibit 10.54 to the Company's Annual Report on Form 10-K for fiscal year ended December
31, 2002, and incorporated herein by reference.)                                                                                                                                                                                        
|10.54 |  | Fourth Amendment and Waiver to Revolving Credit and Term Loan Agreement between the Company and PNC Bank, N.A. dated February 6, 2004.                                                                                                                                                                                                                                                                                                                                
|10.55 |  | Asset Purchase Agreement dated February 5, 2004, by and among MFIC Corporation and Morehouse-COWLES, Inc. (Filed as Exhibit 2 to the Company's Form 8K dated February 13, 2004, and incorporated herein by reference.)                                                                                                                                                                                                                                                
|10.56 |  | Revolving Line of Credit Note in the amount of $1,000,000 in favor of Banknorth, N.A. dated March 3, 2004. (Filed as Exhibit 10.57 to the Company's Annual Report on Form 10K for the fiscal year ended December 31, 2003,
and incorporated herein by reference.)                                                                                                                                                                                                     
|10.57 |  | Letter dated December 31, 2003 from MFIC Corporation to Irwin Gruverman                                                                                                                                                                                                                                                                                                                                                                                               
|10.58 |  | Secured Term Note in the amount of $1,000,000 in favor of Banknorth, N.A. dated March 3, 2004.                                                                                                                                                                                                                                                                                                                                                                        
|10.59 |  | Loan and Security Agreement between Banknorth, N.A. and the Company dated March 3, 2004.                                                                                                                                                                                                                                                                                                                                                                              
|10.60 |  | Trademark Security Agreement of the Company in favor of Banknorth, N.A., dated March 3, 2004.                                                                                                                                                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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|10.61 |     | Patent Security Agreement of the Company in favor of Banknorth, N.A., dated March 3, 2004.                                                        
|----- | --- | --------------------------------------------------------------------------------------------------------------------------------------------------
|10.62 |     | Placement Agency Agreement between the Company and Casimir Capital L.P. dated February 13, 2004.                                                  
|10.63 |     | First Amendment to Placement Agency Agreement between the Company and Casimir Capital L.P. dated March 12, 2004.                                  
|10.64 |     | Registration Rights Agreement between the Company and Purchasers dated March 16, 2004.                                                            
|14.00 |     | Code of Ethics, as adopted by the Company                                                                                                         
|*23   | (a) | Consent of Brown & Brown, LLP                                                                                                                     
|*31.1 |     | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2003.
|*31.2 |     | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2003.
|*32.1 |     | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|*32.2 |     | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 as amended, the Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.

|               |  | MFIC CORPORATION
|-------------- |  | ----------------
|               |  | By:             
|April 29, 2004 |  |                 

Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this amendment has been duly signed on its behalf by the undersigned thereunto duly authorized, in the
city of Newton, Commonwealth of Massachusetts, on the 29th day of April 2004.

|Signature                                 |  | Title                                                                                                   |  | Date          
|----------------------------------------- |  | ------------------------------------------------------------------------------------------------------- |  | --------------
|                                          |  |                                                                                                         |  |               
|/s/IRWIN J. GRUVERMANIrwin J. Gruverman   |  | Chief Executive Officer (Principal Executive Officer, Chairman of the Board of Directors and Secretary) |  | April 29, 2004
|/s/JAMES N. LITTLEJames N. Little         |  | Director                                                                                                |  | April 29, 2004
|/s/VINCENT CORTINAVincent Cortina         |  | Director                                                                                                |  | April 29, 2004
|/s/EDWARD T. PASLAWSKIEdward T. Paslawski |  | Director                                                                                                |  | April 29, 2004

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