TABLE OF CONTENTS




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EXHIBIT 13.0


SELECTED FINANCIAL DATA


(in $000s except for per share data)


| |  |                                                     |  |  |                          |        |  |      |  |    |        |   |  |      |   |        |      |  |  |    |        |   |  |  |   |        |   |  |  | 
| |  | --------------------------------------------------- |  |  | ------------------------ | ------ |  | ---- |  | -- | ------ | - |  | ---- | - | ------ | ---- |  |  | -- | ------ | - |  |  | - | ------ | - |  |  | 
| |  |                                                     |  |  |                          |       
| |  |                                                     |  |  | Years Ended December 31, |        |  |     
| |  |                                                     |  |  | 2004                     |        |  | 2003 |  |    | 2002   |   |  | 2001 |   |        | 2000 |  |  |   
| |  |                                                     |  | 
| |  | Net sales                                           |  |  | $                        | 51,535 |  |      |  | $  | 46,681 |   |  |      | $ | 49,309 |      |  |  | $  | 42,550 |   |  |  | $ | 46,464 |   |  |  | 
| |  | Moving related costs                                |  |  |                          |       |  |      |  |    |       |   |  |      |   |       |      |  |  |    | 1,334  |   |  |  |   |       |   |  |  | 
| |  | Operating earnings (loss)                           |  |  |                          | 1,069  |  |      |  |    | (540   | ) |  |      |   | 1,097  |      |  |  |    | (2,372 | ) |  |  |   | 1,320  |   |  |  | 
| |  | Gain on sale of fixed assets                        |  |  |                          |       |  |      |  |    |       |   |  |      |   |       |      |  |  |    |       |   |  |  |   | 329    |   |  |  | 
| |  | Earnings (loss) from continuing operations          |  |  |                          | 1,068  |  |      |  |    | (697   | ) |  |      |   | 763    |      |  |  |    | (2,894 | ) |  |  |   | 1,092  |   |  |  | 
| |  | Loss on discontinued operations                     |  |  |                          |       |  |      |  |    |       |   |  |      |   |       |      |  |  |    | (2,813 | ) |  |  |   | (241   | ) |  |  | 
| |  | Cumulative effect of change in accounting principle |  |  |                          |       |  |      |  |    |       |   |  |      |   | 52     |      |  |  |    |       |   |  |  |   |       |   |  |  | 
| |  |                                                     |  |  |                          |        |  |      |  |    |        |   |  |      |   |        |      |  |  |    |        |   |  | 
| |  | Net earnings (loss)                                 |  |  | $                        | 1,068  |  |      |  | ($ | 697    | ) |  |      | $ | 815    |      |  |  | ($ | 5,707  | ) |  |  | $ | 851    |   |  |  | 
| |  |                                                     |  |  |                          |        |  |      |  |    |        |   |  |      |   |        |      |  |  |    |        |   |  | 
| |  | Basic net earnings (loss) per common share          |  |  | $                        | 0.15   |  |      |  | ($ | 0.11   | ) |  |      | $ | 0.14   |      |  |  | ($ | 0.96   | ) |  |  | $ | 0.14   |   |  |  | 
| |  | Diluted net earnings (loss) per common share        |  |  | $                        | 0.15   |  |      |  | ($ | 0.11   | ) |  |      | $ | 0.13   |      |  |  | ($ | 0.96   | ) |  |  | $ | 0.14   |   |  |  | 
| |  |                                                     |  |  |                          |        |  |      |  |    |        |   |  |      |   |        |      |  |  |    |        |   |  | 
| |  | Total assets                                        |  |  | $                        | 28,478 |  |      |  | $  | 21,172 |   |  |      | $ | 22,909 |      |  |  | $  | 21,575 |   |  |  | $ | 26,076 |   |  |  | 
| |  | Long-term liabilities                               |  |  | $                        | 3,168  |  |      |  | $  | 5,968  |   |  |      | $ | 8,352  |      |  |  | $  | 8,925  |   |  |  | $ | 7,852  |   |  |  | 
| |  | Working capital                                     |  |  | $                        | 14,244 |  |      |  | $  | 10,052 |   |  |      | $ | 12,269 |      |  |  | $  | 11,607 |   |  |  | $ | 15,377 |   |  |  | 
| |  |                                                     |  |  |                          |        |  |      |  |    |        |   |  |      |   |        |      |  |  |    |        |   |  | 

COMMON SHARE MARKET PRICE




| |  |                |  |  |             |      |  |  |             |   |      |  |      |  |   |      |     |  |  |   |      |  |  |  | 
| |  | -------------- |  |  | ----------- | ---- |  |  | ----------- | - | ---- |  | ---- |  | - | ---- | --- |  |  | - | ---- |  |  |  | 
| |  |                |  |  |             |      |  |  |             |   |      |  |     
| |  |                |  |  | 2004 Prices |      |  |  | 2003 Prices |   |      |  |     
| |  |                |  |  | High        |      |  |  | Low         |   |      |  | High |  |   |      | Low |  |  |   |     
| |  |                |  |  |             |      |  | 
| |  | Quarter ended: |  |  |             |      |  |  |             |   |      |  |      |  |   |      |     |  |  |   |      |  |  |  | 
| |  | March 31       |  |  | $           | 4.65 |  |  |             | $ | 3.22 |  |      |  | $ | 2.33 |     |  |  | $ | 1.42 |  |  |  | 
| |  | June 30        |  |  | $           | 4.95 |  |  |             | $ | 3.68 |  |      |  | $ | 2.62 |     |  |  | $ | 1.80 |  |  |  | 
| |  | September 30   |  |  | $           | 6.03 |  |  |             | $ | 4.47 |  |      |  | $ | 4.15 |     |  |  | $ | 2.02 |  |  |  | 
| |  | December 31    |  |  | $           | 6.74 |  |  |             | $ | 4.25 |  |      |  | $ | 3.95 |     |  |  | $ | 2.85 |  |  |  | 
| |  |                |  |  |             |      |  |  |             |   |      |  |      |  |   |     

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2004 PRESIDENTS REPORT


TO OUR SHAREHOLDERS, CUSTOMERS, SUPPLIERS &
EMPLOYEES:






|  |                                                                                                                                                                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys 2004 revenue grew by 10.3% to
    $51.5 million from $46.7 million in the prior year.                                                                                                                                                                                           
| 
| | Wells-Gardner generated significant EBITDA; approximately
    $2.0 million in 2004 compared to $198,000 in 2003.                                                                                                                                                                              
| 
| | The Companys 2004 net income was $1.1 million or
    $0.15 per share, compared with a loss of ($697,000) or ($0.11)
    per share in 2003. The 2003 results included the one-time charge
    of $797,000 for a one-time write down of inventory and
    consolidation of non-core operations.
| 
| | The Company successfully raised $5.5 million in a PIPE
    (Private Investment in a Public Entity) financing in September
    2004 by selling 1.2 million shares of common stock to
    institutional investors.                                                                              
| 
| | David Bain, gaming analyst of Merriman, Curhan, Ford initiated
    published research on the Company in December 2004 with a
    BUY recommendation.                                                                                                                                          
| 
| | The Company granted a 5% stock dividend to shareholders, the 6th
    time in the Companys history                                                                                                                                                                                            

Strategic Plan


Gaming revenues continued to dominate the Companys
revenues and accounted for 72% of the Companys revenue in
2004 compared to 24% for Amusement revenues.


The LCD Technology Transition Represents a Huge Growth
Opportunity for Wells-Gardner


The Company expects that the
percentage of gaming machines manufactured with LCDs will
grow from 6% in 2004 to virtually 100% by 2007.


American Gaming & Electronics (AGE)


AGE now sells to virtually every casino in North
America.


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Wells Eastern Asia (WEA)


WEA
manufactured over 90% of Wells-Gardners monitors and
LCDs for the gaming market in 2004.


Gaming Strategy


The Company
is now participating in five areas of the gaming market




|  |                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Monitor manufacturing in Malaysia and the US and LCD
    manufacturing in Taiwan and the US, all for the gaming industry.                     
| 
| | Distributing Wells-Gardners and other manufacturers
    parts to casinos throughout North America, Europe and Central
    and South America.
| 
| | Servicing games and games parts for casinos throughout North
    America                                                                      
| 
| | Installing and servicing new gaming equipment into casinos in
    North America                                                               
| 
| | Refurbishing and selling used gaming equipment to customers
    worldwide                                                                     



Wells-Gardner is the Second Largest Monitor and LCD
Manufacturer in the Global Gaming Industry.


The Company estimates its
2004 market share of monitors and LCDs at 28%, which makes
it 2nd in the worldwide gaming industry.


The International Sales Strategy Has Successfully Paid
Off


The Companys international sales accounted for
42% of total revenue up from 16% in 2001.


Quality Continues To Be The Top Priority


best-in-class certified
supplier


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2005 Global Gaming Outlook


 Worldwide, the number of gaming devices is expected to
grow by 15% over the next 2 years from 1.48 million to
1.7 million. In addition, the market share of
video gaming devices using monitors or LCDs is expected to
grow from 50% in 2004 to 70% in 2006 further increasing
Wells-Gardners market potential.


2005 Wells-Gardner Outlook



















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MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & 
 RESULTS OF OPERATIONS


Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003














Year Ended December 31, 2003 Compared to Year Ended
December 31, 2002












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Market & Credit Risks




Critical Accounting Policies




Revenue Recognition




Inventory Obsolescence & Costing Methods




Provision for Bad Debts




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Valuation Allowance for Deferred Tax Assets




Provision for Warranty




Contingencies




Liquidity & Capital Resources














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Contractual Obligations




| |  |                            |                                          |  |       |       |  |  |      |   |     |  |      |  |   |       |      |  |  |   |      |  |  |  |      |     |  |  |      |   |   |  |  |  |   |   |  |  |  | 
| |  | -------------------------- | ---------------------------------------- |  | ----- | ----- |  |  | ---- | - | --- |  | ---- |  | - | ----- | ---- |  |  | - | ---- |  |  |  | ---- | --- |  |  | ---- | - | - |  |  |  | - | - |  |  |  | 
| | 
| |  |                            | Payments Due In Year Ending December 31, |  |       |       | 
| |  |                            |                                          | 
| |  | (in $000s)                |                                          |  | Total |       |  |  | 2005 |   |     |  | 2006 |  |   |       | 2007 |  |  |   | 2008 |  |  |  | 2009 |     |  |  | 2010 |   |   |  | 
| | 
| |  | Note Payable (Note 4)      |                                          |  | $     | 3,168 |  |  |      | $ |    |  |      |  | $ | 3,168 |      |  |  | $ |     |  |  |  | $    |    |  |  |      | $ |  |  |  |  | $ |  |  |  |  | 
| |  | Operating Leases (Note 12) |                                          |  | $     | 2,530 |  |  |      | $ | 946 |  |      |  | $ | 798   |      |  |  | $ | 592  |  |  |  | $    | 182 |  |  |      | $ | 6 |  |  |  | $ | 6 |  |  |  | 
| |  |                            |                                          |  |       |       |  |  |      |   |     |  |      |  |   |       |      |  |  |   |      |  |  |  |      |     |  | 
| |  |                            |                                          |  | $     | 5,698 |  |  |      | $ | 946 |  |      |  | $ | 3,966 |      |  |  | $ | 592  |  |  |  | $    | 182 |  |  |      | $ | 6 |  |  |  | $ | 6 |  |  |  | 
| |  |                            |                                          |  |       |       |  |  |      |   |     |  |      |  |   |       |      |  |  |   |      |  |  |  |      |     |  | 

Inflation




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CONSOLIDATED BALANCE SHEETS As of December 31, 
 (in $000s except for share information)


| |  |                                          |                                                                                                                                               |  |      |        |        |   |      |   |        |        |   |  |  | 
| |  | ---------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ------ | - | ---- | - | ------ | ------ | - |  |  | 
| |  |                                          |                                                                                                                                               |  |      |       
| |  |                                          |                                                                                                                                               |  | 2004 |        |        |   | 2003 |   |        |        |  
| |  |                                          |                                                                                                                                               | 
| |  | ASSETS                                   |                                                                                                                                               |  |      |        |        |   |      |   |        |        |   |  | 
| |  | Current Assets:                          |                                                                                                                                               |  |      |        |        |   |      |   |        |        |   |  | 
| |  |                                          | Cash                                                                                                                                          |  |      | $      | 534    |   |      |   | $      | 283    |   |  |  | 
| |  |                                          | Accounts receivable, net of allowances of $100 in
    2004 & $146 in 2003                                                                     |  |      |        | 5,757  |   |      |   |        | 4,690  |   |  |  | 
| |  |                                          | Accounts receivable, affiliates                                                                                                               |  |      |        | 3,635  |   |      |   |        | 2,077  |   |  |  | 
| |  |                                          | Inventory                                                                                                                                     |  |      |        | 13,556 |   |      |   |        | 8,904  |   |  |  | 
| |  |                                          | Prepaid expenses & other assets                                                                                                               |  |      |        | 793    |   |      |   |        | 1,041  |   |  |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Total current assets                     |                                                                                                                                               |  | $    | 24,275 |        |   |      | $ | 16,995 |        |   |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Property, Plant & Equipment (at cost):   |                                                                                                                                               |  |      |        |        |   |      |   |        |        |   |  | 
| |  |                                          | Leasehold improvements                                                                                                                        |  |      |        | 279    |   |      |   |        | 279    |   |  |  | 
| |  |                                          | Machinery, equipment & software                                                                                                               |  |      |        | 8,679  |   |      |   |        | 8,478  |   |  |  | 
| |  |                                          | less: Accumulated depreciation & amortization                                                                                                 |  |      |        | (7,222 | ) |      |   |        | (6,707 | ) |  |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Property, plant & equipment, net         |                                                                                                                                               |  | $    | 1,736  |        |   |      | $ | 2,050  |        |   |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Other Assets:                            |                                                                                                                                               |  |      |        |        |   |      |   |        |        |   |  | 
| |  |                                          | Investment in joint venture                                                                                                                   |  |      |        | 1,138  |   |      |   |        | 798    |   |  |  | 
| |  |                                          | Goodwill                                                                                                                                      |  |      |        | 1,329  |   |      |   |        | 1,329  |   |  |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Total other assets                       |                                                                                                                                               |  | $    | 2,467  |        |   |      | $ | 2,127  |        |   |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Total Assets                             |                                                                                                                                               |  | $    | 28,478 |        |   |      | $ | 21,172 |        |   |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | LIABILITIES & SHAREHOLDERS EQUITY       |                                                                                                                                               |  |      |        |        |   |      |   |        |        |   |  | 
| |  | Current Liabilities:                     |                                                                                                                                               |  |      |        |        |   |      |   |        |        |   |  | 
| |  |                                          | Accounts payable                                                                                                                              |  |      |        | 4,333  |   |      |   |        | 2,635  |   |  |  | 
| |  |                                          | Accounts payable, affiliates                                                                                                                  |  |      |        | 5,023  |   |      |   |        | 3,679  |   |  |  | 
| |  |                                          | Accrued expenses                                                                                                                              |  |      |        | 675    |   |      |   |        | 629    |   |  |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Total current liabilities                |                                                                                                                                               |  | $    | 10,031 |        |   |      | $ | 6,943  |        |   |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Long-Term Liabilities:                   |                                                                                                                                               |  |      |        |        |   |      |   |        |        |   |  | 
| |  |                                          | Note payable                                                                                                                                  |  |      |        | 3,168  |   |      |   |        | 5,968  |   |  |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Total long-term liabilities              |                                                                                                                                               |  | $    | 3,168  |        |   |      | $ | 5,968  |        |   |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Total Liabilities                        |                                                                                                                                               |  | $    | 13,199 |        |   |      | $ | 12,911 |        |   |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Shareholders Equity:                    |                                                                                                                                               |  |      |        |        |   |      |   |        |        |   |  | 
| |  |                                          | Common shares:                                                                                                                                |  |      |        |        |   |      |   |        |        |   |  |  | 
| |  |                                          | $1 par value; 25,000,000 shares authorized; 8,153,077 shares
    issued at December 31, 2004 6,220,898 shares issued at
    December 31, 2003 |  |      |        | 8,153  |   |      |   |        | 6,221  |   |  |  | 
| |  |                                          | Capital in excess of par value                                                                                                                |  |      |        | 9,618  |   |      |   |        | 4,531  |   |  |  | 
| |  |                                          | Accumulated deficit                                                                                                                           |  |      |        | (2,405 | ) |      |   |        | (2,334 | ) |  |  | 
| |  |                                          | Unearned compensation                                                                                                                         |  |      |        | (87    | ) |      |   |        | (157   | ) |  |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Total Shareholders Equity               |                                                                                                                                               |  | $    | 15,279 |        |   |      | $ | 8,261  |        |   |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  
| |  | Total Liabilities & Shareholders Equity |                                                                                                                                               |  | $    | 28,478 |        |   |      | $ | 21,172 |        |   |  | 
| |  |                                          |                                                                                                                                               |  |      |        |        |  



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CONSOLIDATED STATEMENTS OF OPERATIONS


Years ended December 31, 
 (in $000s except for share & per share data)


| |  |                                                     |                                                     |  |      |           |        |   |      |   |           |        |      |  |   |           |        |  |  |  | 
| |  | --------------------------------------------------- | --------------------------------------------------- |  | ---- | --------- | ------ | - | ---- | - | --------- | ------ | ---- |  | - | --------- | ------ |  |  |  | 
| |  |                                                     |                                                     |  |      |          
| |  |                                                     |                                                     |  | 2004 |           |        |   | 2003 |   |           |        | 2002 |  |   |           |       
| |  |                                                     |                                                     | 
| |  | Net sales                                           |                                                     |  | $    | 51,535    |        |   |      | $ | 46,681    |        |      |  | $ | 49,309    |        |  |  | 
| |  | Cost & expenses:                                    |                                                     |  |      |           |        |   |      |   |           |        |      |  |   |           |        |  |  | 
| |  |                                                     | Cost of sales                                       |  |      |           | 42,296 |   |      |   |           | 38,664 |      |  |   |           | 39,929 |  |  |  | 
| |  |                                                     | Engineering, selling & administrative               |  |      |           | 8,170  |   |      |   |           | 8,557  |      |  |   |           | 8,283  |  |  |  | 
| |  |                                                     |                                                     |  |      |           |        |   |      |   |           |       
| |  | Operating earnings (loss)                           |                                                     |  |      | 1,069     |        |   |      |   | (540      | )      |      |  |   | 1,097     |        |  |  | 
| |  |                                                     | Other (income) expense, net                         |  |      |           | (33    | ) |      |   |           | 143    |      |  |   |           | 332    |  |  |  | 
| |  |                                                     |                                                     |  |      |           |        |   |      |   |           |       
| |  | Earnings (loss) before income tax                   |                                                     |  |      | 1,102     |        |   |      |   | (683      | )      |      |  |   | 765       |        |  |  | 
| |  |                                                     | Income tax                                          |  |      |           | 34     |   |      |   |           | 14     |      |  |   |           | 2      |  |  |  | 
| |  |                                                     |                                                     |  |      |           |        |   |      |   |           |       
| |  | Earnings (loss) before cumulative effect            |                                                     |  |      | 1,068     |        |   |      |   | (697      | )      |      |  |   | 763       |        |  |  | 
| |  | Cumulative effect of change in accounting principle |                                                     |  |      |          |        |   |      |   |          |        |      |  |   | 52        |        |  |  | 
| |  |                                                     |                                                     |  |      |           |        |   |      |   |           |       
| |  | Net earnings (loss)                                 |                                                     |  | $    | 1,068     |        |   |      | $ | (697      | )      |      |  | $ | 815       |        |  |  | 
| |  |                                                     |                                                     |  |      |           |        |   |      |   |           |       
| |  | Basic earnings (loss) per common share:             |                                                     |  |      |           |        |   |      |   |           |        |      |  |   |           |        |  |  | 
| |  |                                                     | Before cumulative effect                            |  |      | $         | 0.15   |   |      |   | $         | (0.11  | )    |  |   | $         | 0.13   |  |  |  | 
| |  |                                                     | Cumulative effect of change in accounting principle |  |      |           |       |   |      |   |           |       |      |  |   | $         | 0.01   |  |  |  | 
| |  |                                                     |                                                     |  |      |           |        |   |      |   |           |       
| |  | Basic net earnings (loss) per common share          |                                                     |  | $    | 0.15      |        |   |      | $ | (0.11     | )      |      |  | $ | 0.14      |        |  |  | 
| |  |                                                     |                                                     |  |      |           |        |   |      |   |           |       
| |  | Diluted earnings (loss) per common share:           |                                                     |  |      |           |        |   |      |   |           |        |      |  |   |           |        |  |  | 
| |  |                                                     | Before cumulative effect                            |  |      | $         | 0.15   |   |      |   | $         | (0.11  | )    |  |   | $         | 0.12   |  |  |  | 
| |  |                                                     | Cumulative effect of change in accounting principle |  |      |           |       |   |      |   |           |       |      |  |   | $         | 0.01   |  |  |  | 
| |  |                                                     |                                                     |  |      |           |        |   |      |   |           |       
| |  | Diluted net earnings (loss) per common share        |                                                     |  | $    | 0.15      |        |   |      | $ | (0.11     | )      |      |  | $ | 0.13      |        |  |  | 
| |  |                                                     |                                                     |  |      |           |        |   |      |   |           |       
| |  | Basic common shares outstanding                     |                                                     |  |      | 7,162,502 |        |   |      |   | 6,339,915 |        |      |  |   | 6,029,262 |        |  |  | 
| |  | Diluted common shares outstanding                   |                                                     |  |      | 7,339,083 |        |   |      |   | 6,339,915 |        |      |  |   | 6,108,027 |        |  |  | 
| |  |                                                     |                                                     |  |      |           |        |   |      |   |           |       



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CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


(in $000s)


| |  |                                             |  |  |        |       |   |            |           |   |       |   |             |  |       |        |              |  |  |   |               |   |  |  |   |        |   |  |  | 
| |  | ------------------------------------------- |  |  | ------ | ----- | - | ---------- | --------- | - | ----- | - | ----------- |  | ----- | ------ | ------------ |  |  | - | ------------- | - |  |  | - | ------ | - |  |  | 
| |  |                                             |  |  |        |      
| |  |                                             |  |  |        |       |   | Capital In |           |   |       |   |             |  | Total |        |              |  | 
| |  |                                             |  |  | Common |       |   |            | Excess Of |   |       |   | Accumulated |  |       |        | Unearned     |  |  |   | Shareholders |   |  |  |  
| |  |                                             |  |  | Shares |       |   |            | Par Value |   |       |   | Deficit     |  |       |        | Compensation |  |  |   | Equity        |   |  |  |  
| |  |                                             |  | 
| |  | December 31, 2001                           |  |  | $      | 5,272 |   |            |           | $ | 3,319 |   |             |  | $     | (1,135 | )            |  |  | $ | (251          | ) |  |  | $ | 7,205  |   |  |  | 
| |  |                                             |  |  |        |       |   |            |           |   |       |   |             |  |       |        |              |  |  |  
| |  | Net earnings                                |  |  |        |      |   |            |           |   |      |   |             |  |       | 815    |              |  |  |   |              |   |  |  |   | 815    |   |  |  | 
| |  | Stock dividend issued                       |  |  |        | 260   |   |            |           |   | 452   |   |             |  |       | (712   | )            |  |  |   |              |   |  |  |   |       |   |  |  | 
| |  | Issuance/cancellation of stock awards (net) |  |  |        | (13   | ) |            |           |   | (24   | ) |             |  |       |       |              |  |  |   | 74            |   |  |  |   | 37     |   |  |  | 
| |  | Shares issued from stock purchase plan      |  |  |        | 9     |   |            |           |   | 10    |   |             |  |       |       |              |  |  |   |              |   |  |  |   | 19     |   |  |  | 
| |  | Stock options exercised                     |  |  |        | 55    |   |            |           |   | 70    |   |             |  |       |       |              |  |  |   |              |   |  |  |   | 125    |   |  |  | 
| |  | Amortization of unearned compensation       |  |  |        |      |   |            |           |   |      |   |             |  |       |       |              |  |  |   | 39            |   |  |  |   | 39     |   |  |  | 
| |  |                                             |  |  |        |       |   |            |           |   |       |   |             |  |       |        |              |  |  |  
| |  | December 31, 2002                           |  |  | $      | 5,583 |   |            |           | $ | 3,827 |   |             |  | $     | (1,032 | )            |  |  | $ | (138          | ) |  |  | $ | 8,240  |   |  |  | 
| |  |                                             |  |  |        |       |   |            |           |   |       |   |             |  |       |        |              |  |  |  
| |  | Net loss                                    |  |  |        |      |   |            |           |   |      |   |             |  |       | (697   | )            |  |  |   |              |   |  |  |   | (697   | ) |  |  | 
| |  | Stock dividend issued                       |  |  |        | 290   |   |            |           |   | 315   |   |             |  |       | (605   | )            |  |  |   |              |   |  |  |   |       |   |  |  | 
| |  | Issuance/cancellation of stock awards (net) |  |  |        | 61    |   |            |           |   | 33    |   |             |  |       |       |              |  |  |   | (52           | ) |  |  |   | 42     |   |  |  | 
| |  | Shares issued from stock purchase plan      |  |  |        | 6     |   |            |           |   | 7     |   |             |  |       |       |              |  |  |   |              |   |  |  |   | 13     |   |  |  | 
| |  | Stock options exercised                     |  |  |        | 281   |   |            |           |   | 349   |   |             |  |       |       |              |  |  |   |              |   |  |  |   | 630    |   |  |  | 
| |  | Amortization of unearned compensation       |  |  |        |      |   |            |           |   |      |   |             |  |       |       |              |  |  |   | 33            |   |  |  |   | 33     |   |  |  | 
| |  |                                             |  |  |        |       |   |            |           |   |       |   |             |  |       |        |              |  |  |  
| |  | December 31, 2003                           |  |  | $      | 6,221 |   |            |           | $ | 4,531 |   |             |  | $     | (2,334 | )            |  |  | $ | (157          | ) |  |  | $ | 8,261  |   |  |  | 
| |  |                                             |  |  |        |       |   |            |           |   |       |   |             |  |       |        |              |  |  |  
| |  | Net earnings                                |  |  |        |      |   |            |           |   |      |   |             |  |       | 1,068  |              |  |  |   |              |   |  |  |   | 1,068  |   |  |  | 
| |  | Stock dividend issued                       |  |  |        | 319   |   |            |           |   | 820   |   |             |  |       | (1,139 | )            |  |  |   |              |   |  |  |   |       |   |  |  | 
| |  | Issuance/cancellation of stock awards (net) |  |  |        | 4     |   |            |           |   | 44    |   |             |  |       |       |              |  |  |   | 16            |   |  |  |   | 64     |   |  |  | 
| |  | Private placement shares and warrants       |  |  |        | 1,217 |   |            |           |   | 3,816 |   |             |  |       |       |              |  |  |   |              |   |  |  |   | 5,033  |   |  |  | 
| |  | Shares issued from stock purchase plan      |  |  |        | 1     |   |            |           |   | 4     |   |             |  |       |       |              |  |  |   |              |   |  |  |   | 5      |   |  |  | 
| |  | Stock options exercised                     |  |  |        | 391   |   |            |           |   | 403   |   |             |  |       |       |              |  |  |   |              |   |  |  |   | 794    |   |  |  | 
| |  | Amortization of unearned compensation       |  |  |        |      |   |            |           |   |      |   |             |  |       |       |              |  |  |   | 54            |   |  |  |   | 54     |   |  |  | 
| |  |                                             |  |  |        |       |   |            |           |   |       |   |             |  |       |        |              |  |  |  
| |  | December 31, 2004                           |  |  | $      | 8,153 |   |            |           | $ | 9,618 |   |             |  | $     | (2,405 | )            |  |  | $ | (87           | ) |  |  | $ | 15,279 |   |  |  | 
| |  |                                             |  |  |        |       |   |            |           |   |       |   |             |  |       |        |              |  |  |  



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CONSOLIDATED STATEMENTS OF CASH FLOWS


Years ended December 31,


(in $000s)


| |  |                                                     |                                                                                                          |                                                     |      |        |        |        |      |   |        |        |       |   |   |       |        |        |   |  |  | 
| |  | --------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ---- | ------ | ------ | ------ | ---- | - | ------ | ------ | ----- | - | - | ----- | ------ | ------ | - |  |  | 
| |  |                                                     |                                                                                                          |                                                     |      |       
| |  |                                                     |                                                                                                          |                                                     | 2004 |        |        |        | 2003 |   |        |        | 2002  |   |   |       |       
| |  |                                                     |                                                                                                          |                                                    
| |  | Cash flows from operating activities:               |                                                                                                          |                                                     |      |        |        |        |      |   |        |        |       |   |   |       |        |        |   | 
| |  |                                                     | Net earnings (loss)                                                                                      |                                                     |      | $      | 1,068  |        |      |   | $      | (697   | )     |   |   | $     | 815    |        |   |  | 
| |  |                                                     | Adjustments to reconcile net earnings (loss) to net cash
    provided by (used in) operating activities: |                                                     |      |        |        |        |      |   |        |        |       |   |   |       |        |        |   |  | 
| |  |                                                     |                                                                                                          | Depreciation and amortization                       |      |        |        | 515    |      |   |        |        | 521   |   |   |       |        | 555    |   |  |  | 
| |  |                                                     |                                                                                                          | Amortization of unearned compensation               |      |        |        | 54     |      |   |        |        | 33    |   |   |       |        | 39     |   |  |  | 
| |  |                                                     |                                                                                                          | Cumulative effect of change in accounting principle |      |        |        |       |      |   |        |        |      |   |   |       |        | (52    | ) |  |  | 
| |  |                                                     |                                                                                                          | Share of earnings of joint venture                  |      |        |        | (340   | )    |   |        |        | (262  | ) |   |       |        | (188   | ) |  |  | 
| |  |                                                     | Changes in current assets & liabilities:                                                                 |                                                     |      |        |        |        |      |   |        |        |       |   |   |       |        |        |   |  | 
| |  |                                                     |                                                                                                          | Accounts receivable, net                            |      |        |        | (2,625 | )    |   |        |        | 3,145 |   |   |       |        | (1,911 | ) |  |  | 
| |  |                                                     |                                                                                                          | Inventory                                           |      |        |        | (4,652 | )    |   |        |        | 91    |   |   |       |        | 1,016  |   |  |  | 
| |  |                                                     |                                                                                                          | Prepaid expenses & other                            |      |        |        | 248    |      |   |        |        | (67   | ) |   |       |        | (16    | ) |  |  | 
| |  |                                                     |                                                                                                          | Accounts payable, net                               |      |        |        | 3,042  |      |   |        |        | (147  | ) |   |       |        | 570    |   |  |  | 
| |  |                                                     |                                                                                                          | Accrued expenses                                    |      |        |        | 46     |      |   |        |        | (104  | ) |   |       |        | 302    |   |  |  | 
| |  |                                                     |                                                                                                          |                                                     |      |        |        |        |      |   |        |       
| |  | Net cash provided by (used in) operating activities |                                                                                                          |                                                     | $    | (2,644 | )      |        |      | $ | 2,513  |        |       |   | $ | 1,130 |        |        |   | 
| |  |                                                     |                                                                                                          |                                                     |      |        |        |        |      |   |        |       
| |  | Cash flows used in investing activities:            |                                                                                                          |                                                     |      |        |        |        |      |   |        |        |       |   |   |       |        |        |   | 
| |  |                                                     | Additions to property, plant & equipment, net                                                            |                                                     |      |        | (201   | )      |      |   |        | (113   | )     |   |   |       | (115   | )      |   |  | 
| |  |                                                     |                                                                                                          |                                                     |      |        |        |        |      |   |        |       
| |  | Net cash used in investing activities               |                                                                                                          |                                                     | $    | (201   | )      |        |      | $ | (113   | )      |       |   | $ | (115  | )      |        |   | 
| |  |                                                     |                                                                                                          |                                                     |      |        |        |        |      |   |        |       
| |  | Cash flows from financing activities:               |                                                                                                          |                                                     |      |        |        |        |      |   |        |        |       |   |   |       |        |        |   | 
| |  |                                                     | Borrowings (repayments) from note payable                                                                |                                                     |      |        | (2,800 | )      |      |   |        | (2,984 | )     |   |   |       | 627    |        |   |  | 
| |  |                                                     | Repayment from installment note payable                                                                  |                                                     |      |        |       |        |      |   |        | (600   | )     |   |   |       | (1,200 | )      |   |  | 
| |  |                                                     | Proceeds (net) from private placement stock issuance                                                     |                                                     |      |        | 5,037  |        |      |   |        |       |       |   |   |       |       |        |   |  | 
| |  |                                                     | Proceeds from stock issued, options exercised &
    employee stock purchase plan                         |                                                     |      |        | 859    |        |      |   |        | 685    |       |   |   |       | 181    |        |   |  | 
| |  |                                                     |                                                                                                          |                                                     |      |        |        |        |      |   |        |       
| |  | Net cash provided by (used in) financing activities |                                                                                                          |                                                     | $    | 3,096  |        |        |      | $ | (2,899 | )      |       |   | $ | (392  | )      |        |   | 
| |  |                                                     |                                                                                                          |                                                     |      |        |        |        |      |   |        |       
| |  | Net increase (decrease) in cash                     |                                                                                                          |                                                     |      | 251    |        |        |      |   | (499   | )      |       |   |   | 623   |        |        |   | 
| |  | Cash at beginning of year                           |                                                                                                          |                                                     |      | 283    |        |        |      |   | 782    |        |       |   |   | 159   |        |        |   | 
| |  |                                                     |                                                                                                          |                                                     |      |        |        |        |      |   |        |       
| |  | Cash at end of year                                 |                                                                                                          |                                                     | $    | 534    |        |        |      | $ | 283    |        |       |   | $ | 782   |        |        |   | 
| |  |                                                     |                                                                                                          |                                                     |      |        |        |        |      |   |        |       
| |  | Supplemental cash flows disclosure:                 |                                                                                                          |                                                     |      |        |        |        |      |   |        |        |       |   |   |       |        |        |   | 
| |  |                                                     | Income taxes paid                                                                                        |                                                     |      | $      | 34     |        |      |   | $      | 14     |       |   |   | $     | 2      |        |   |  | 
| |  |                                                     | Interest paid                                                                                            |                                                     |      | $      | 302    |        |      |   | $      | 328    |       |   |   | $     | 483    |        |   |  | 
| |  |                                                     |                                                                                                          |                                                     |      |        |        |        |      |   |        |       



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NOTES TO THE FINANCIAL STATEMENTS


Note 1. DESCRIPTION OF THE BUSINESS




Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation




Management Estimates




Revenue Recognition




Financial Instruments




Receivables




Inventory Obsolescence & Costing Methods




Provision for Warranty




| |  |                        |              |  |      |      |   |  |      |   |      |   |      |  |   |      |   |  |  | 
| |  | ---------------------- | ------------ |  | ---- | ---- | - |  | ---- | - | ---- | - | ---- |  | - | ---- | - |  |  | 
| | 
| |  |                        | December 31, |  |      |      |  
| |  |                        |              | 
| |  | (in $000s)            |              |  | 2004 |      |   |  | 2003 |   |      |   | 2002 |  |   |      |  
| | 
| |  | Beginning Balance      |              |  | $    | 184  |   |  |      | $ | 100  |   |      |  | $ | 60   |   |  |  | 
| |  | Increases To Provision |              |  | $    | 311  |   |  |      | $ | 313  |   |      |  | $ | 276  |   |  |  | 
| |  | Charges To Provision   |              |  | $    | (395 | ) |  |      | $ | (229 | ) |      |  | $ | (236 | ) |  |  | 
| |  |                        |              |  |      |      |   |  |      |   |      |  
| |  | Ending Balance         |              |  | $    | 100  |   |  |      | $ | 184  |   |      |  | $ | 100  |   |  |  | 
| |  |                        |              |  |      |      |   |  |      |   |      |  

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Property, Plant & Equipment




Internal Use Software




Investments




Goodwill




Engineering Research & Development




Income Taxes




Earnings (Loss) Per Share




Stock Based Compensation




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| |  |                                                              |                     |           |      |       |      |       |      |   |      |       |      |   |   |     |      |     |  |  |  | 
| |  | ------------------------------------------------------------ | ------------------- | --------- | ---- | ----- | ---- | ----- | ---- | - | ---- | ----- | ---- | - | - | --- | ---- | --- |  |  |  | 
| | 
| |  | (in $000s except per share data)                            |                     |           | 2004 |       |      |       | 2003 |   |      |       | 2002 |   |   |     |     
| | 
| |  | Net earnings (loss):                                         |                     |           |      |       |      |       |      |   |      |       |      |   |   |     |      |     |  | 
| |  | As reported                                                  |                     |           | $    | 1,068 |      |       |      | $ | (697 | )     |      |   | $ | 815 |      |     |  | 
| |  | Total stock-based employee compensation expense (fair value) |                     |           | $    | (26   | )    |       |      | $ | (99  | )     |      |   | $ | (21 | )    |     |  | 
| |  |                                                              |                     |           |      |       |      |       |      |   |      |      
| |  |                                                              |                     | Pro forma |      |       | $    | 1,042 |      |   |      | $     | (796 | ) |   |     | $    | 794 |  |  |  | 
| |  | Net earnings (loss) per common and common equivalent share:  |                     |           |      |       |      |       |      |   |      |       |      |   |   |     |      |     |  | 
| |  |                                                              | Basic as reported   |           |      | $     | 0.15 |       |      |   | $    | (0.11 | )    |   |   | $   | 0.13 |     |  |  | 
| |  |                                                              | Diluted as reported |           |      | $     | 0.15 |       |      |   | $    | (0.11 | )    |   |   | $   | 0.13 |     |  |  | 
| |  |                                                              | Pro forma  Basic   |           |      | $     | 0.15 |       |      |   | $    | (0.13 | )    |   |   | $   | 0.13 |     |  |  | 
| |  |                                                              | Pro forma  Diluted |           |      | $     | 0.14 |       |      |   | $    | (0.13 | )    |   |   | $   | 0.13 |     |  |  | 
| |  |                                                              |                     |           |      |       |      |       |      |   |      |      

Reclassifications




Recently Issued Accounting Pronouncements










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Note 3. INVENTORY




| |  |                  |              |  |      |        |  |  |      |   |       |  |  |  | 
| |  | ---------------- | ------------ |  | ---- | ------ |  |  | ---- | - | ----- |  |  |  | 
| | 
| |  |                  | December 31, |  |      |        | 
| |  |                  |              | 
| |  | (in $000s)      |              |  | 2004 |        |  |  | 2003 |   |       |  | 
| | 
| |  | Raw materials    |              |  | $    | 6,297  |  |  |      | $ | 4,637 |  |  |  | 
| |  | Work in progress |              |  | $    | 908    |  |  |      | $ | 516   |  |  |  | 
| |  | Finished goods   |              |  | $    | 6,351  |  |  |      | $ | 3,751 |  |  |  | 
| |  |                  |              |  |      |        |  | 
| |  | Total            |              |  | $    | 13,556 |  |  |      | $ | 8,904 |  |  |  | 
| |  |                  |              |  |      |        |  | 

Note 4. DEBT




Note 5. COMMON STOCK






| |  |                                  |      |  |         |          |      |  |       |   |      |  |          |  |  |           |       |  |  |          |         |  |  |  |       |           |   |  |  |   |      |  |  |  | 
| |  | -------------------------------- | ---- |  | ------- | -------- | ---- |  | ----- | - | ---- |  | -------- |  |  | --------- | ----- |  |  | -------- | ------- |  |  |  | ----- | --------- | - |  |  | - | ---- |  |  |  | 
| | 
| |  |                                  | 2004 |  |         |          | 2003 |  |       |   | 2002 |  |          |  | 
| |  |                                  |      |  |         | Weighted |      |  |       |   |      |  | Weighted |  |  |           |       |  |  | Weighted |         |  |  | 
| |  |                                  |      |  |         | average  |      |  |       |   |      |  | average  |  |  |           |       |  |  | average  |         |  |  | 
| |  |                                  |      |  |         | exercise |      |  |       |   |      |  | exercise |  |  |           |       |  |  | exercise |         |  |  | 
| |  |                                  |      |  | Options |          |      |  | price |   |      |  | Options  |  |  |           | price |  |  |          | Options |  |  |  | price |           |   |  | 
| | 
| |  | Outstanding at beginning of year |      |  |         | 879,019  |      |  |       | $ | 2.82 |  |          |  |  | 1,240,729 |       |  |  | $        | 2.87    |  |  |  |       | 1,300,666 |   |  |  | $ | 3.11 |  |  |  | 
| |  | Granted                          |      |  |         | 74,681   |      |  |       | $ | 2.56 |  |          |  |  | 82,303    |       |  |  | $        | 2.20    |  |  |  |       | 219,414   |   |  |  | $ | 2.64 |  |  |  | 
| |  | Forfeited                        |      |  |         | (13,423  | )    |  |       | $ | 2.70 |  |          |  |  | (124,975  | )     |  |  | $        | 2.76    |  |  |  |       | (223,857  | ) |  |  | $ | 3.35 |  |  |  | 
| |  | Exercised                        |      |  |         | (566,575 | )    |  |       | $ | 2.33 |  |          |  |  | (319,038  | )     |  |  | $        | 2.45    |  |  |  |       | (55,494   | ) |  |  | $ | 2.20 |  |  |  | 
| |  |                                  |      |  |         |          |      |  |       |   |      |  |          |  |  |           |       |  |  |          |         |  |  | 
| |  | Outstanding at end of year       |      |  |         | 373,702  |      |  |       | $ | 2.45 |  |          |  |  | 879,019   |       |  |  | $        | 2.82    |  |  |  |       | 1,240,729 |   |  |  | $ | 2.87 |  |  |  | 
| |  |                                  |      |  |         |          |      |  |       |   |      |  |          |  |  |           |       |  |  |          |         |  |  | 



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|                    |  |                 |                  |                     |             |         |  |  |                  |  |     |  |                  |  |   |      |             |  |  |  |                  |  |  |  |   |      |  |  |  | 
|------------------- |  | --------------- | ---------------- | ------------------- | ----------- | ------- |  |  | ---------------- |  | --- |  | ---------------- |  | - | ---- | ----------- |  |  |  | ---------------- |  |  |  | - | ---- |  |  |  | 
|                    |  |                 |                  |                     |            
|Options Outstanding |  |                 |                  | Options Exercisable |             |         |  | 
|                    |  |                 |                  |                     |            
|                    |  |                 | Weighted average |                     |             |         |  |  |                  |  |    
|                    |  | Range of        |                  |                     | Options     |         |  |  | remaining        |  |     |  | Weighted average |  |   |      | Options     |  |  |  | Weighted average |  |  |  |  
|                    |  | exercise prices |                  |                     | outstanding |         |  |  | contractual life |  |     |  | exercise price   |  |   |      | exercisable |  |  |  | exercise price   |  |  |  |  
|                    |  |                 |                  |                     |            
|                    |  | $1.71  $2.14   |                  |                     |             | 166,792 |  |  |                  |  | 5.7 |  |                  |  | $ | 1.94 |             |  |  |  | 138,324          |  |  |  | $ | 1.90 |  |  |  | 
|                    |  | $2.15  $2.67   |                  |                     |             | 88,714  |  |  |                  |  | 4.2 |  |                  |  | $ | 2.51 |             |  |  |  | 88,714           |  |  |  | $ | 2.51 |  |  |  | 
|                    |  | $2.68  $3.03   |                  |                     |             | 94,650  |  |  |                  |  | 4.0 |  |                  |  | $ | 3.03 |             |  |  |  | 94,650           |  |  |  | $ | 3.03 |  |  |  | 
|                    |  | $3.04  $3.55   |                  |                     |             | 23,546  |  |  |                  |  | 6.1 |  |                  |  | $ | 3.49 |             |  |  |  | 20,721           |  |  |  | $ | 3.48 |  |  |  | 
|                    |  |                 |                  |                     |             |         |  |  |                  |  |     |  |                  |  |   |      |             |  |  | 
|                    |  |                 |                  |                     |             | 373,702 |  |  |                  |  | 4.9 |  |                  |  | $ | 2.45 |             |  |  |  | 342,409          |  |  |  | $ | 2.47 |  |  |  | 
|                    |  |                 |                  |                     |             |         |  |  |                  |  |     |  |                  |  |   |      |             |  |  | 





Note 6. ACCRUED EXPENSES




| |  |                         |              |  |      |     |     |  |      |   |     |     |  |  |  | 
| |  | ----------------------- | ------------ |  | ---- | --- | --- |  | ---- | - | --- | --- |  |  |  | 
| | 
| |  |                         | December 31, |  |      |     |    
| |  |                         |              | 
| |  | (in $000s)             |              |  | 2004 |     |     |  | 2003 |   |     |     | 
| | 
| |  | Payroll & related costs |              |  | $    | 294 |     |  |      | $ | 185 |     |  |  | 
| |  | Sales commissions       |              |  | $    | 43  |     |  |      | $ | 30  |     |  |  | 
| |  | Warranty                |              |  | $    | 100 |     |  |      | $ | 184 |     |  |  | 
| |  | Other accrued expenses  |              |  | $    | 238 |     |  |      | $ | 230 |     |  |  | 
| |  |                         |              |  |      |     |     | 
| |  |                         | Total        |  |      | $   | 675 |  |      |   | $   | 629 |  |  |  | 
| |  |                         |              |  |      |     |     | 

Note 7. OTHER EXPENSE, NET




| |  |                                       |                    |  |      |      |     |   |      |   |      |     |      |  |   |      |     |  |  |  | 
| |  | ------------------------------------- | ------------------ |  | ---- | ---- | --- | - | ---- | - | ---- | --- | ---- |  | - | ---- | --- |  |  |  | 
| | 
| |  | (in $000s)                           |                    |  | 2004 |      |     |   | 2003 |   |      |     | 2002 |  |   |      |    
| | 
| |  | Interest expense                      |                    |  | $    | 302  |     |   |      | $ | 328  |     |      |  | $ | 483  |     |  |  | 
| |  | Other expense                         |                    |  | $    | 5    |     |   |      | $ | 78   |     |      |  | $ | 36   |     |  |  | 
| |  | Other income, primarily joint venture |                    |  | $    | (340 | )   |   |      | $ | (263 | )   |      |  | $ | (187 | )   |  |  | 
| |  |                                       |                    |  |      |      |     |   |      |   |      |    
| |  |                                       | Other expense, net |  |      | $    | (33 | ) |      |   | $    | 143 |      |  |   | $    | 332 |  |  |  | 
| |  |                                       |                    |  |      |      |     |   |      |   |      |    

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Note 8. INCOME TAXES




| |  |                                                               |  |  |      |      |   |  |      |   |      |   |      |  |   |      |   |  |  | 
| |  | ------------------------------------------------------------- |  |  | ---- | ---- | - |  | ---- | - | ---- | - | ---- |  | - | ---- | - |  |  | 
| | 
| |  | (in $000s)                                                   |  |  | 2004 |      |   |  | 2003 |   |      |   | 2002 |  |   |      |  
| | 
| |  | Computed expected tax expense (benefit)                       |  |  | $    | 363  |   |  |      | $ | (241 | ) |      |  | $ | 278  |   |  |  | 
| |  | State income tax expense (benefit), net of Federal tax effect |  |  | $    | 49   |   |  |      | $ | (33  | ) |      |  | $ | 21   |   |  |  | 
| |  | Other, net                                                    |  |  | $    | (82  | ) |  |      | $ | (26  | ) |      |  | $ | (70  | ) |  |  | 
| |  | Change in valuation allowance                                 |  |  | $    | (296 | ) |  |      | $ | 314  |   |      |  | $ | (227 | ) |  |  | 
| |  |                                                               |  |  |      |      |   |  |      |   |      |  
| |  |                                                               |  |  | $    | 34   |   |  |      | $ | 14   |   |      |  | $ | 2    |   |  |  | 
| |  |                                                               |  |  |      |      |   |  |      |   |      |  



| |  |                           |                                                                   |                                 |      |   |       |        |      |  |   |       |        |   |  |  | 
| |  | ------------------------- | ----------------------------------------------------------------- | ------------------------------- | ---- | - | ----- | ------ | ---- |  | - | ----- | ------ | - |  |  | 
| | 
| |  |                           | December 31,                                                      |                                 |      |   |      
| |  |                           |                                                                   |                                
| |  | (in $000s)               |                                                                   |                                 | 2004 |   |       |        | 2003 |  |   |       |       
| | 
| |  | Deferred tax assets:      |                                                                   |                                 |      |   |       |        |      |  |   |       |        |   | 
| |  |                           | Allowance for doubtful accounts                                   |                                 |      | $ | 39    |        |      |  | $ | 56    |        |   |  | 
| |  |                           | Warranty reserve                                                  |                                 |      | $ | 39    |        |      |  | $ | 71    |        |   |  | 
| |  |                           | Inventory reserve                                                 |                                 |      | $ | 147   |        |      |  | $ | 75    |        |   |  | 
| |  |                           | Net operating loss carryforwards                                  |                                 |      | $ | 2,748 |        |      |  | $ | 3,153 |        |   |  | 
| |  |                           | Alternative minimum tax credit carryforwards                      |                                 |      | $ | 62    |        |      |  | $ | 73    |        |   |  | 
| |  |                           | General business credit carryforwards                             |                                 |      | $ | 129   |        |      |  | $ | 129   |        |   |  | 
| |  |                           | Other                                                             |                                 |      | $ | 36    |        |      |  | $ | 11    |        |   |  | 
| |  |                           |                                                                   |                                 |      |   |       |       
| |  |                           |                                                                   | Total gross deferred tax assets |      |   | $     | 3,200  |      |  |   | $     | 3,568  |   |  |  | 
| |  |                           |                                                                   | Less valuation allowance        |      |   | $     | (2,678 | )    |  |   | $     | (2,974 | ) |  |  | 
| |  |                           |                                                                   |                                 |      |   |       |       
| |  |                           |                                                                   | Total deferred tax assets       |      |   | $     | 522    |      |  |   | $     | 594    |   |  |  | 
| |  | Deferred tax liabilities: |                                                                   |                                 |      |   |       |        |      |  |   |       |        |   | 
| |  |                           | Deferred compensation                                             |                                 |      |   |      |        |      |  | $ | 12    |        |   |  | 
| |  |                           | Property, plant, equipment and software, principally depreciation |                                 |      | $ | 410   |        |      |  | $ | 510   |        |   |  | 
| |  |                           | Goodwill                                                          |                                 |      | $ | 112   |        |      |  | $ | 72    |        |   |  | 
| |  |                           |                                                                   |                                 |      |   |       |       
| |  |                           |                                                                   | Total deferred tax liabilities  |      |   | $     | 522    |      |  |   | $     | 594    |   |  |  | 
| |  |                           |                                                                   |                                 |      |   |       |       
| |  | Net deferred taxes        |                                                                   |                                 |      |  |       |        |      |  |  |       |        |   | 
| |  |                           |                                                                   |                                 |      |   |       |       



Note 9. EARNINGS PER SHARE




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| |  |                                              |                                                     |  |      |      |       |  |      |   |       |       |      |  |   |      |       |  |  |  | 
| |  | -------------------------------------------- | --------------------------------------------------- |  | ---- | ---- | ----- |  | ---- | - | ----- | ----- | ---- |  | - | ---- | ----- |  |  |  | 
| | 
| |  | (in $000s except for per share data)        |                                                     |  | 2004 |      |       |  | 2003 |   |       |       | 2002 |  |   |      |      
| | 
| |  | Basic earnings (loss) per common share:      |                                                     |  |      |      |       |  |      |   |       |       |      |  |   |      |       |  |  | 
| |  |                                              | Earnings (loss) before cumulative effect            |  |      | $    | 1,068 |  |      |   | $     | (697  | )    |  |   | $    | 763   |  |  |  | 
| |  |                                              | Cumulative effect of change in accounting principle |  |      |      |      |  |      |   |       |      |      |  |   | $    | 52    |  |  |  | 
| |  |                                              |                                                     |  |      |      |       |  |      |   |       |      
| |  |                                              | Net earnings (loss)                                 |  |      | $    | 1,068 |  |      |   | $     | (697  | )    |  |   | $    | 815   |  |  |  | 
| |  |                                              | Weighted-average common shares outstanding          |  |      |      | 7,163 |  |      |   |       | 6,340 |      |  |   |      | 6,029 |  |  |  | 
| |  |                                              | Earnings (loss) before cumulative effect            |  |      | $    | 0.15  |  |      |   | $     | (0.11 | )    |  |   | $    | 0.13  |  |  |  | 
| |  |                                              | Cumulative effect of change in accounting principle |  |      |      |      |  |      |   |       |      |      |  |   | $    | 0.01  |  |  |  | 
| |  |                                              |                                                     |  |      |      |       |  |      |   |       |      
| |  | Basic net earnings (loss) per common share   |                                                     |  | $    | 0.15 |       |  |      | $ | (0.11 | )     |      |  | $ | 0.14 |       |  |  | 
| |  |                                              |                                                     |  |      |      |       |  |      |   |       |      
| |  | Diluted earnings (loss) per common share:    |                                                     |  |      |      |       |  |      |   |       |       |      |  |   |      |       |  |  | 
| |  |                                              | Earnings (loss) before cumulative effect            |  |      | $    | 1,068 |  |      |   | $     | (697  | )    |  |   | $    | 763   |  |  |  | 
| |  |                                              | Cumulative effect of change in accounting principle |  |      |      |      |  |      |   |       |      |      |  |   | $    | 52    |  |  |  | 
| |  |                                              |                                                     |  |      |      |       |  |      |   |       |      
| |  |                                              | Net earnings (loss)                                 |  |      | $    | 1,068 |  |      |   | $     | (697  | )    |  |   | $    | 815   |  |  |  | 
| |  |                                              | Weighted-average common shares outstanding          |  |      |      | 7,163 |  |      |   |       | 6,340 |      |  |   |      | 6,029 |  |  |  | 
| |  |                                              | Add: Effect of dilutive stock options               |  |      |      | 176   |  |      |   |       |      |      |  |   |      | 79    |  |  |  | 
| |  |                                              |                                                     |  |      |      |       |  |      |   |       |      
| |  |                                              | Adjusted weighted-average common shares outstanding |  |      |      | 7,339 |  |      |   |       | 6,340 |      |  |   |      | 6,108 |  |  |  | 
| |  |                                              | Earnings (loss) before cumulative effect            |  |      | $    | 0.15  |  |      |   | $     | (0.11 | )    |  |   | $    | 0.12  |  |  |  | 
| |  |                                              | Cumulative effect of change in accounting principle |  |      |      |      |  |      |   |       |      |      |  |   | $    | 0.01  |  |  |  | 
| |  |                                              |                                                     |  |      |      |       |  |      |   |       |      
| |  | Diluted net earnings (loss) per common share |                                                     |  | $    | 0.15 |       |  |      | $ | (0.11 | )     |      |  | $ | 0.13 |       |  |  | 
| |  |                                              |                                                     |  |      |      |       |  |      |   |       |      



Note 10. OPERATING SEGMENTS




| |  |                            |                                  |  |      |   |        |   |      |  |   |        |      |  |  |   |        |   |  |  | 
| |  | -------------------------- | -------------------------------- |  | ---- | - | ------ | - | ---- |  | - | ------ | ---- |  |  | - | ------ | - |  |  | 
| | 
| |  |                            | December 31,                     |  |      |   |       
| |  |                            |                                  | 
| |  | (in $000s)                |                                  |  | 2004 |   |        |   | 2003 |  |   |        | 2002 |  |  |   |       
| | 
| |  | Net Sales:                 |                                  |  |      |   |        |   |      |  |   |        |      |  |  |   |        |   |  | 
| |  |                            | Gaming                           |  |      | $ | 37,205 |   |      |  | $ | 35,115 |      |  |  | $ | 34,203 |   |  |  | 
| |  |                            | Amusement                        |  |      | $ | 12,174 |   |      |  | $ | 10,322 |      |  |  | $ | 14,079 |   |  |  | 
| |  |                            | Other                            |  |      | $ | 2,156  |   |      |  | $ | 1,244  |      |  |  | $ | 1,027  |   |  |  | 
| |  |                            |                                  |  |      |   |        |   |      |  |   |       
| |  |                            | Total Net Sales                  |  |      | $ | 51,535 |   |      |  | $ | 46,681 |      |  |  | $ | 49,309 |   |  |  | 
| |  | Operating Earnings (Loss): |                                  |  |      |   |        |   |      |  |   |        |      |  |  |   |        |   |  | 
| |  |                            | Gaming                           |  |      | $ | 2,648  |   |      |  | $ | 1,487  |      |  |  | $ | 2,261  |   |  |  | 
| |  |                            | Amusement                        |  |      | $ | 1,354  |   |      |  | $ | 900    |      |  |  | $ | 1,730  |   |  |  | 
| |  |                            | Other                            |  |      | $ | 281    |   |      |  | $ | 219    |      |  |  | $ | 174    |   |  |  | 
| |  |                            | Unallocated Administration Costs |  |      | $ | (3,214 | ) |      |  | $ | (3,146 | )    |  |  | $ | (3,068 | ) |  |  | 
| |  |                            |                                  |  |      |   |        |   |      |  |   |       
| |  |                            | Total Operating Earnings (Loss)  |  |      | $ | 1,069  |   |      |  | $ | (540   | )    |  |  | $ | 1,097  |   |  |  | 
| |  |                            |                                  |  |      |   |        |   |      |  |   |       

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Note 11. JOINT VENTURE/AFFILIATES










Note 12. LEASE COMMITMENTS




| |  |             |              |  |             |       |  |  |  | 
| |  | ----------- | ------------ |  | ----------- | ----- |  |  |  | 
| | 
| |  |             | Years ending |  |             |       | 
| |  | (in $000s) |              |  | December 31 |       |  |  | 
| | 
| |  | 2005        |              |  | $           | 946   |  |  |  | 
| |  | 2006        |              |  | $           | 798   |  |  |  | 
| |  | 2007        |              |  | $           | 592   |  |  |  | 
| |  | 2008        |              |  | $           | 182   |  |  |  | 
| |  | 2009        |              |  | $           | 6     |  |  |  | 
| |  | Thereafter  |              |  | $           | 6     |  |  |  | 
| |  |             |              | 
| |  |             |              |  | $           | 2,530 |  |  |  | 
| |  |             |              | 

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Note 13. UNAUDITED QUARTERLY FINANCIAL DATA




| |  |                                   |      |  |       |        |  |  |        |   |        |  |       |  |   |        |        |  |  |   |        |  |  |  | 
| |  | --------------------------------- | ---- |  | ----- | ------ |  |  | ------ | - | ------ |  | ----- |  | - | ------ | ------ |  |  | - | ------ |  |  |  | 
| | 
| |  |                                   | 2004 |  |       |        | 
| |  |                                   |      | 
| |  | (in $000s except per share data) |      |  | First |        |  |  | Second |   |        |  | Third |  |   |        | Fourth |  |  |   |       
| | 
| |  | Net sales                         |      |  | $     | 12,745 |  |  |        | $ | 12,885 |  |       |  | $ | 12,529 |        |  |  | $ | 13,376 |  |  |  | 
| |  | Net earnings                      |      |  | $     | 260    |  |  |        | $ | 278    |  |       |  | $ | 213    |        |  |  | $ | 317    |  |  |  | 
| |  | Basic net earnings per share      |      |  | $     | 0.04   |  |  |        | $ | 0.04   |  |       |  | $ | 0.03   |        |  |  | $ | 0.04   |  |  |  | 
| |  | Diluted net earnings per share    |      |  | $     | 0.04   |  |  |        | $ | 0.04   |  |       |  | $ | 0.03   |        |  |  | $ | 0.04   |  |  |  | 
| |  |                                   |      |  |       |        |  |  |        |   |        |  |       |  |   |       

| |  |                                       |      |  |       |        |  |  |        |   |        |  |       |  |   |        |        |  |  |   |        |   |  |  | 
| |  | ------------------------------------- | ---- |  | ----- | ------ |  |  | ------ | - | ------ |  | ----- |  | - | ------ | ------ |  |  | - | ------ | - |  |  | 
| | 
| |  |                                       | 2003 |  |       |        | 
| |  |                                       |      | 
| |  | (in $000s except per share data)     |      |  | First |        |  |  | Second |   |        |  | Third |  |   |        | Fourth |  |  |   |       
| | 
| |  | Net sales                             |      |  | $     | 11,857 |  |  |        | $ | 11,810 |  |       |  | $ | 11,744 |        |  |  | $ | 11,270 |   |  |  | 
| |  | Net earnings (loss)                   |      |  | $     | 125    |  |  |        | $ | 35     |  |       |  | $ | (55    | )      |  |  | $ | (802   | ) |  |  | 
| |  | Basic net earnings (loss) per share   |      |  | $     | 0.02   |  |  |        | $ | 0.00   |  |       |  | $ | (0.01  | )      |  |  | $ | (0.12  | ) |  |  | 
| |  | Diluted net earnings (loss) per share |      |  | $     | 0.02   |  |  |        | $ | 0.00   |  |       |  | $ | (0.01  | )      |  |  | $ | (0.12  | ) |  |  | 
| |  |                                       |      |  |       |        |  |  |        |   |        |  |       |  |   |       

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM










Goodwill and Other Intangible Assets,


Blackman Kallick
Bartelstein LLP






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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM















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|                   |  |                  
|------------------ |  | -----------------
|BOARD OF DIRECTORS |  | EXECUTIVE OFFICER



|                                                                                                                                                                                                                                                                               |  |                                                               
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------
|Anthony SpierChairman, President &
    Chief Executive OfficerMerle H. BantaChairman & Chief Executive Officer
    BHH Management, Inc.Marshall L. BurmanCounsel to Wildman,
    Harrold, Allen & DixonFrank R. MartinSenior Partner of Righeimer,
    Martin & Cinquino, P.C. |  | Anthony SpierChairman, President &
    Chief Executive Officer

|                      |  | 
|--------------------- |  | 
|CORPORATE INFORMATION |  | 



|                                                                                                                                                                                                                                 |  | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|ANNUAL MEETING                                                                                                                                                                                                                   |  | 
|The Annual Meeting of Shareholders will take place at 2:00 p.m.
    on Tuesday, April 26, 2005 at the corporate offices of the
    Company.                                                                                      |  | 
|                                                                                                                                                                                                                                
|FORM 10-K                                                                                                                                                                                                                        |  | 
|A copy of the Companys annual report on Form 10-K, as
    filed with the Securities and Exchange Commission, is available
    without charge upon written request to the Secretary at the
    corporate offices of the Company. |  | 
|                                                                                                                                                                                                                                
|TRANSFER AGENT                                                                                                                                                                                                                   |  | 
|LaSalle National Bank
    135 South LaSalle Street
    Chicago, Illinois 60603                                                                                                                                                   |  | 
|BANKERS                                                                                                                                                                                                                          |  | 
|LaSalle Bank National Association
    Chicago, Illinois                                                                                                                                                                          |  | 
|AUDITORS                                                                                                                                                                                                                         |  | 
|Blackman Kallick Bartelstein LLP
    Chicago, Illinois                                                                                                                                                                           |  | 
|COUNSEL                                                                                                                                                                                                                          |  | 
|Pedersen & Houpt
    Chicago, Illinois                                                                                                                                                                                           |  | 

24