Manitex International (MNTX)

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Revenue. Revenue decreased by $0.3 million, or 3.6%, to $7.6 million for the period ended December 31, 2005 from $7.9 million for the same period in 2004. This decrease was primarily the result of decreased orders for specialty equipment. The majority of our revenue for the year ended December 31, 2005 was derived from specialty equipment business which accounted for 88% of our revenue. During 2005, specialty equipment for driveshaft, diesel engine, and axle products accounted for 36%, 33%, and 19% of total revenue, respectively. For the same period in 2004, specialty equipment for axle and transmission products accounted for 66% and 12%, respectively. During the 2005 period, the Company experienced a significant increase in orders for our driveshaft manufacturing machines as compared to the same period in 2004. In particular, we sold driveshaft manufacturing equipment to three Korean Tier 1 suppliers. One of these customers purchased a complete driveshaft assembly system, consisting of a synchrowelder machine, a driveshaft dynamic truing center, a joint assembly machine and a rollstaking machine. Revenues from the sale of specific specialty equipment are affected by the needs and new platform launch schedules of customers and their OEM customers.

Cost of Sales. Cost of Sales increased $0.9 million, or 14.6%, to $7.4 million for the period ended December 31, 2005 from $6.5 million for the comparable period in 2004. This increase in cost of sales was due, in part, to increased production costs related to the driveshaft assembly equipment contracts for the Korean market, and, in part, to fixed overhead costs incurred during the first half of the year while we were in the initial stages of development of the contracts. As a percentage of revenue, cost of sales increased to 96.9% in 2005 from 81.4% in 2004. This increase in cost of sales as a percentage of revenue was primarily the result of increased manufacturing costs relating to our driveshaft assembly equipment. Manufacturing costs were greater than anticipated due to manufacturing of more sophisticated driveshaft equipment for new customers as compared to prior periods in which the Company engaged in more repeat manufacturing of standalone driveshaft machines. These manufacturing costs include increased labor costs resulting from our employees learning the manufacturing process of these new machines and increased material cost as physical changes were made to the machines in order for them to optimally function as designed. The Company anticipates that the costs to design and manufacture these products will decline over time, as experienced with manufacturing other products. Due to the high number of machines being built during the second half of the year, increased labor and material costs related to meeting customer delivery requirements were incurred. These increased costs resulted from having to produce and deliver several machines within the same four-week period. In order to meet these deadlines, we hired temporary workers, worked overtime and expedited the manufacture of certain components.

Gross Margin. Goss margin decreased $1.2 million, or 83.9%, to $0.2 million for the 2005 period from $1.5 million for 2004. As a percentage of sales, gross margin decreased to 3.0% in 2005 from 18.5% in 2004. The dollar and percentage decrease in gross margin was primarily the result of increased manufacturing costs associated with the production of specialty driveshaft assembly systems and lower contract revenue.

Research and Development Expenses. Research and development expenses declined $1.1 million, or 70.9%, for the period ended December 31, 2005 to $0.5 million as compared to the comparable 2004 period. Research and development expenses declined with the focusing of efforts on the production of specialty equipment. As a percentage of sales our research and development expenses decreased to 6.0% of revenue in 2005 from 19.8% of revenue in 2004.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.6 million, or 17.6%, to $3.2 million for the period ended December 31, 2005 from $3.8 million for the 2004 period. Selling, general, and administrative expenses for 2004 included the creation of a reserve for costs and earnings in excess of billings of approximately $1.6 million due to doubt that a customer would take delivery of a specialty machine. During 2005, additional reserves totaling $0.2 million for two separate machines were recorded. Excluding these reserves, SG&A expenses increased $0.8 million for the year. This increase is primarily attributable to increased staffing incurred in order to implement the growth strategy of commercializing testing

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services and manufacturing precision driveshafts, increased travel expenses incurred servicing foreign-based customers, and public company related expenses.

Operating Profit (Loss). As a result of the foregoing factors, operating profit increased $0.5 million to a loss of $3.4 million for the 2005 period from a loss of $3.9 million for 2004.

Interest Income (Expense). As a result of a successful initial public offering in February 2005, the Company repaid the outstanding balance on the revolving credit facility and did not utilize it during the remainder of the year. In addition, our subordinated debt obligation, which totaled approximately $7.2 million at December 31, 2004, was converted into common stock. As a result, interest expense decreased $1.2 million to $0.1 million for the 2005 period from $1.3 million for the same period in 2004. The Company also earned interest income of $0.2 million during the year ended December 31, 2005 by investing cash balances in short-term marketable securities. The Company had no interest income during the year ended December 31, 2004.

Income Tax Expense (Benefit). Income tax benefit was $1.1 million for the period ended December 31, 2005 compared to a tax benefit of $1.8 million for the prior year.

Net Earnings (Loss). As a result of the foregoing factors, net loss from operations was $2.3 million for the period ended December 31, 2005 compared to a net loss of $3.5 million in 2004.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Revenue. Our revenue decreased by $0.3 million, or 3.6%, to $7.6 million for the period ended December 31, 2005 from $7.9 million for the same period in 2004. This decrease was primarily the result of decreased orders for our specialty equipment. The majority of our revenue for the year ended December 31, 2005 was derived from our specialty equipment business which accounted for 88% of our revenue. During 2005 our driveshaft, diesel engine, and axle products accounted for 36%, 33%, and 19% of total revenue, respectively. For the same period in 2004, our axle and transmission products accounted for 66% and 12%, respectively. During the 2005 period, we experienced a significant increase in orders for our driveshaft manufacturing machines as compared to the same period in 2004. In particular, we sold driveshaft manufacturing equipment to three Korean Tier 1 suppliers. One of these customers purchased a complete driveshaft assembly system, consisting of a synchrowelder machine, a driveshaft dynamic truing center, a joint assembly machine and a rollstaking machine. Revenues from the sale of specific specialty equipment are affected by the needs and new platform launch schedules of our customers and their OEM customers.

Cost of Sales. Cost of Sales increased $0.9 million, or 14.6%, to $7.4 million for the period ended December 31, 2005 from $6.5 million for the comparable period in 2004. This increase in cost of sales was due, in part, to increased production costs

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related to the driveshaft assembly equipment contracts for the Korean market, and, in part, to fixed overhead costs incurred during the first half of the year while we were in the initial stages of development of the contracts. As a percentage of revenue, cost of sales increased to 96.9% in 2005 from 81.4% in 2004. This increase in cost of sales as a percentage of revenue was primarily the result of increased manufacturing costs relating to our driveshaft assembly equipment. Manufacturing costs were greater than anticipated as we undertook to manufacture more sophisticated driveshaft equipment for new customers as compared to prior periods in which we engaged in more repeat manufacturing of standalone driveshaft machines. These manufacturing costs include increased labor costs resulting from our employees learning the manufacturing process of these new machines and increased material cost as physical changes were made to the machines in order for them to optimally function as designed. We anticipate that the costs to design and manufacture these products will decline over time, as we have experienced with manufacturing other products. Due to the high number of machines we were building during the second half of the year, we incurred increased labor and material costs related to meeting our customers’ delivery requirements in order for our products to be installed during their shutdown periods. These increased costs resulted from having to produce and deliver several machines within the same four-week period. In order to meet these deadlines, we hired temporary workers, worked overtime and expedited the manufacture of certain components.

Gross Margin. Our gross margin decreased $1.2 million, or 83.9%, to $0.2 million for the 2005 period from $1.5 million for 2004. As a percentage of sales, gross margin decreased to 3.0% in 2005 from 18.5% in 2004. The dollar and percentage decrease in gross margin was primarily the result of increased manufacturing costs associated with the production of our specialty driveshaft assembly systems and lower contract revenue.

Research and Development Expenses. Our research and development expenses declined $1.1 million, or 70.9%, for the period ended December 31, 2005 to $0.5 million as compared to the comparable 2004 period. Research and development expenses declined as we focused our efforts on the production of our specialty equipment. As a percentage of sales our research and development expenses decreased to 6.0% of revenue in 2005 from 19.8% of revenue in 2004.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased $0.6 million, or 17.6%, to $3.2 million for the period ended December 31, 2005 from $3.8 million for the 2004 period. Selling, general, and administrative expenses for 2004 included the creation of a reserve for costs and earnings in excess of billings of approximately $1.6 million due to doubt that a customer would take delivery of a specialty machine. During 2005, we recorded additional reserves totaling $0.2 million for two separate machines. Excluding these reserves, SG&A expenses increased $0.8 million for the year. This increase is primarily attributable to increased staffing incurred in order to implement our growth strategy of commercializing our testing services and manufacturing precision driveshafts, increased travel expenses incurred servicing our foreign-based customers and public company related expenses.

Operating Profit (Loss). As a result of the foregoing factors, operating profit increased $0.5 million to a loss of $3.4 million for the 2005 period from a loss of $3.9 million for 2004.

Interest Income (Expense). As a result of our successful initial public offering in February 2005, we repaid the outstanding balance on our revolving credit facility and did not utilize it during the remainder of the year. In addition, our subordinated debt obligation, which totaled approximately $7.2 million at December 31, 2004 was converted into common stock. As a result, interest expense decreased $1.2 million to $0.1 million for the 2005 period from $1.3 million for the same period in 2004. We also earned interest income of $0.2 million during the year ended December 31, 2005 by investing our cash balances in short-term marketable securities. We had no interest income during the year ended December 31, 2004.

Income Tax Expense (Benefit). Our income tax benefit was $1.1 million for the period ended December 31, 2005 compared to a tax benefit of $1.8 million for the prior year.

Net Earnings (Loss). As a result of the foregoing factors, net loss from operations was $2.3 million for the period ended December 31, 2005 compared to a net loss of $3.5 million in 2004.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Revenue. Revenue decreased by $0.3 million, or 3.6%, to $7.6 million for the period ended December 31, 2005 from $7.9 million for the same period in 2004. This decrease was primarily the result of decreased orders for specialty equipment. The majority of our revenue for the year ended December 31, 2005 was derived from specialty equipment business which accounted for 88% of our revenue. During 2005, specialty equipment for driveshaft, diesel engine, and axle products accounted for 36%, 33%, and 19% of total revenue, respectively. For the same period in 2004, specialty equipment for axle and transmission products accounted for 66% and 12%, respectively. During the 2005 period, the Company experienced a significant increase in orders for our driveshaft manufacturing machines as compared to the same period in 2004. In particular, we sold driveshaft manufacturing equipment to three Korean Tier 1 suppliers. One of these customers purchased a complete driveshaft assembly system, consisting of a synchrowelder machine, a driveshaft dynamic truing center, a joint assembly machine and a rollstaking machine. Revenues from the sale of specific specialty equipment are affected by the needs and new platform launch schedules of customers and their OEM customers.

Cost of Sales. Cost of Sales increased $0.9 million, or 14.6%, to $7.4 million for the period ended December 31, 2005 from $6.5 million for the comparable period in 2004. This increase in cost of sales was due, in part, to increased production costs related to the driveshaft assembly equipment contracts for the Korean market, and, in part, to fixed overhead costs incurred during the first half of the year while we were in the initial stages of development of the contracts. As a percentage of revenue, cost of sales increased to 96.9% in 2005 from 81.4% in 2004. This increase in cost of sales as a percentage of revenue was primarily the result of increased manufacturing costs relating to our driveshaft assembly equipment. Manufacturing costs were greater than anticipated due to manufacturing of more sophisticated driveshaft equipment for new customers as compared to prior periods in which the Company engaged in more repeat manufacturing of standalone driveshaft machines. These manufacturing costs include increased labor costs resulting from our employees learning the manufacturing process of these new machines and increased material cost as physical changes were made to the machines in order for them to optimally function as designed. The Company anticipates that the costs to design and manufacture these products will decline over time, as experienced with manufacturing other products. Due to the high number of machines being built during the second half of the year, increased labor and material costs related to meeting customer delivery requirements were incurred. These increased costs resulted from having to produce and deliver several machines within the same four-week period. In order to meet these deadlines, we hired temporary workers, worked overtime and expedited the manufacture of certain components.

Gross Margin. Goss margin decreased $1.2 million, or 83.9%, to $0.2 million for the 2005 period from $1.5 million for 2004. As a percentage of sales, gross margin decreased to 3.0% in 2005 from 18.5% in 2004. The dollar and percentage decrease in gross margin was primarily the result of increased manufacturing costs associated with the production of specialty driveshaft assembly systems and lower contract revenue.

Research and Development Expenses. Research and development expenses declined $1.1 million, or 70.9%, for the period ended December 31, 2005 to $0.5 million as compared to the comparable 2004 period. Research and development expenses declined with the focusing of efforts on the production of specialty equipment. As a percentage of sales our research and development expenses decreased to 6.0% of revenue in 2005 from 19.8% of revenue in 2004.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.6 million, or 17.6%, to $3.2 million for the period ended December 31, 2005 from $3.8 million for the 2004 period. Selling, general, and administrative expenses for 2004 included the creation of a reserve for costs and earnings in excess of billings of approximately $1.6 million due to doubt that a customer would take delivery of a specialty machine. During 2005, additional reserves totaling $0.2 million for two separate machines were recorded. Excluding these reserves, SG&A expenses increased $0.8 million for the year. This increase is primarily attributable to increased staffing incurred in order to implement the growth strategy of commercializing testing

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services and manufacturing precision driveshafts, increased travel expenses incurred servicing foreign-based customers, and public company related expenses.

Operating Profit (Loss). As a result of the foregoing factors, operating profit increased $0.5 million to a loss of $3.4 million for the 2005 period from a loss of $3.9 million for 2004.

Interest Income (Expense). As a result of a successful initial public offering in February 2005, the Company repaid the outstanding balance on the revolving credit facility and did not utilize it during the remainder of the year. In addition, our subordinated debt obligation, which totaled approximately $7.2 million at December 31, 2004, was converted into common stock. As a result, interest expense decreased $1.2 million to $0.1 million for the 2005 period from $1.3 million for the same period in 2004. The Company also earned interest income of $0.2 million during the year ended December 31, 2005 by investing cash balances in short-term marketable securities. The Company had no interest income during the year ended December 31, 2004.

Income Tax Expense (Benefit). Income tax benefit was $1.1 million for the period ended December 31, 2005 compared to a tax benefit of $1.8 million for the prior year.

Net Earnings (Loss). As a result of the foregoing factors, net loss from operations was $2.3 million for the period ended December 31, 2005 compared to a net loss of $3.5 million in 2004.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Revenue. Our revenue decreased by $0.3 million, or 3.6%, to $7.6 million for the period ended December 31, 2005 from $7.9 million for the same period in 2004. This decrease was primarily the result of decreased orders for our specialty equipment. The majority of our revenue for the year ended December 31, 2005 was derived from our specialty equipment business which

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accounted for 88% of our revenue. During 2005 our driveshaft, diesel engine, and axle products accounted for 36%, 33%, and 19% of total revenue, respectively. For the same period in 2004, our axle and transmission products accounted for 66% and 12%, respectively. During the 2005 period, we experienced a significant increase in orders for our driveshaft manufacturing machines as compared to the same period in 2004. In particular, we sold driveshaft manufacturing equipment to three Korean Tier 1 suppliers. One of these customers purchased a complete driveshaft assembly system, consisting of a synchrowelder machine, a driveshaft dynamic truing center, a joint assembly machine and a rollstaking machine. Revenues from the sale of specific specialty equipment are affected by the needs and new platform launch schedules of our customers and their OEM customers.

Cost of Sales. Cost of Sales increased $0.9 million, or 14.6%, to $7.4 million for the period ended December 31, 2005 from $6.5 million for the comparable period in 2004. This increase in cost of sales was due, in part, to increased production costs related to the driveshaft assembly equipment contracts for the Korean market, and, in part, to fixed overhead costs incurred during the first half of the year while we were in the initial stages of development of the contracts. As a percentage of revenue, cost of sales increased to 96.9% in 2005 from 81.4% in 2004. This increase in cost of sales as a percentage of revenue was primarily the result of increased manufacturing costs relating to our driveshaft assembly equipment. Manufacturing costs were greater than anticipated as we undertook to manufacture more sophisticated driveshaft equipment for new customers as compared to prior periods in which we engaged in more repeat manufacturing of standalone driveshaft machines. These manufacturing costs include increased labor costs resulting from our employees learning the manufacturing process of these new machines and increased material cost as physical changes were made to the machines in order for them to optimally function as designed. We anticipate that the costs to design and manufacture these products will decline over time, as we have experienced with manufacturing other products. Due to the high number of machines we were building during the second half of the year, we incurred increased labor and material costs related to meeting our customers’ delivery requirements in order for our products to be installed during their shutdown periods. These increased costs resulted from having to produce and deliver several machines within the same four-week period. In order to meet these deadlines, we hired temporary workers, worked overtime and expedited the manufacture of certain components.

Gross Margin. Our gross margin decreased $1.2 million, or 83.9%, to $0.2 million for the 2005 period from $1.5 million for 2004. As a percentage of sales, gross margin decreased to 3.0% in 2005 from 18.5% in 2004. The dollar and percentage decrease in gross margin was primarily the result of increased manufacturing costs associated with the production of our specialty driveshaft assembly systems and lower contract revenue.

Research and Development Expenses. Our research and development expenses declined $1.1 million, or 70.9%, for the period ended December 31, 2005 to $0.5 million as compared to the comparable 2004 period. Research and development expenses declined as we focused our efforts on the production of our specialty equipment. As a percentage of sales our research and development expenses decreased to 6.0% of revenue in 2005 from 19.8% of revenue in 2004.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased $0.6 million, or 17.6%, to $3.2 million for the period ended December 31, 2005 from $3.8 million for the 2004 period. Selling, general, and administrative expenses for 2004 included the creation of a reserve for costs and earnings in excess of billings of approximately $1.6 million due to doubt that a customer would take delivery of a specialty machine. During 2005, we recorded additional reserves totaling $0.2 million for two separate machines. Excluding these reserves, SG&A expenses increased $0.8 million for the year. This increase is primarily attributable to increased staffing incurred in order to implement our growth strategy of commercializing our testing services and manufacturing precision driveshafts, increased travel expenses incurred servicing our foreign-based customers and public company related expenses.

Operating Profit (Loss). As a result of the foregoing factors, operating profit increased $0.5 million to a loss of $3.4 million for the 2005 period from a loss of $3.9 million for 2004.

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Interest Income (Expense). As a result of our successful initial public offering in February 2005, we repaid the outstanding balance on our revolving credit facility and did not utilize it during the remainder of the year. In addition, our subordinated debt obligation, which totaled approximately $7.2 million at December 31, 2004 was converted into common stock. As a result, interest expense decreased $1.2 million to $0.1 million for the 2005 period from $1.3 million for the same period in 2004. We also earned interest income of $0.2 million during the year ended December 31, 2005 by investing our cash balances in short-term marketable securities. We had no interest income during the year ended December 31, 2004.

Income Tax Expense (Benefit). Our income tax benefit was $1.1 million for the period ended December 31, 2005 compared to a tax benefit of $1.8 million for the prior year.

Net Earnings (Loss). As a result of the foregoing factors, net loss from operations was $2.3 million for the period ended December 31, 2005 compared to a net loss of $3.5 million in 2004.

Nine Months Ended September 30, 2005 Compared to the Nine Months Ended September 30, 2004

Revenue. Our revenue decreased to $5.7 million, or 12.2%, to $5.7 million for the period ended September 30, 2005 from $6.5 million for the same period in 2004. This decrease was primarily the result of lower backlog at the beginning of the period and the early stage of 2005 bookings in the design and manufacturing process. Backlog at September 30, 2005 was approximately $6.3 million as compared to $1.4 million in the 2004 period. In addition, the 2005 period has several projects in the early stage of production and thus lower revenue recognition. Our main sources of revenue for the period ended September 30, 2005 were our axle products, primarily VETAG axle test equipment, engine application equipment and driveshaft assembly equipment which accounted for 22%, 13% and 44% of total revenue, respectively. For the same period in 2004, our axle and transmission products accounted for 65% and 19% of revenue, respectively.

Cost of Sales. Our cost of sales increased by $0.1 million, or 2.2%, to $5.1 million for the period ended September 30, 2005 from $5.0 million for the comparable period in 2004. This increase in cost of sales was primarily attributable to higher levels of production of our specialty equipment. As a percentage of revenue, cost of sales increased to 89.7% in 2005 from 77.1% in 2004. This is a direct result of lower revenue as our fixed costs remained relatively constant in the 2005 period as compared to the 2004 period.

Gross Margin (loss). Our gross margin decreased $0.9 million, or 60.6%, to $0.6 million for the 2005 period from $1.5 million for 2004. As a percentage of sales, gross margin decreased to 10.2% in 2005 from 22.9% in 2004. The dollar and percentage decrease in gross margin was primarily the result of the impact of fixed costs and lower revenue volume.

Research and Development Expenses. Our research and development expenses declined $0.7 million to $0.4 million for the period ended September 30, 2005 as compared to $1.1 million in the comparable 2004 period. As a percentage of sales our research and development expenses decreased to 7.5% of sales in 2005 from 17.9% in 2004.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased $0.6 million, or 35.7%, to $2.2 million for the period ended September 30, 2005 from $1.6 million for the 2004 period. This increase was primarily the result of increased staffing to execute our strategy and increased travel related to our sales and bookings in Mexico and Korea.

Operating Loss. As a result of the foregoing factors, operating profit decreased $0.8 million to a loss of $2.1 million for the 2005 period from a loss of $1.3 million for 2004.

Other Income (Expense). Other income or expense increased $1.2 million to income of $0.1 million for the 2005 period from an expense of $1.1 million for the same period in 2004. The increase in other income was primarily due the paydown of our credit facility to zero, the conversion of our subordinated debt and the investment in short term securities. These actions were the result of our successful initial public offering in the first quarter of 2005.

Income Tax Expense (Benefit). Our income tax benefit was $0.6 million for the period ended September 30, 2005 as compared to a benefit of $0.8 million in the 2004 period.

Net Loss. As a result of the foregoing factors, net loss from operations was $1.3 million in the 2005 period as compared to loss of $1.6 million in 2004.

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Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004

Revenue. Our revenue decreased to $2.7 million, or 54.8%, to $2.2 million for the period ended June 30, 2005 from $4.7 million for the same period in 2004. This decrease was primarily the result of lower backlog at the beginning of the period and the early stage of 2005 bookings in the design and manufacturing process. Backlog at June 30, 2005 was approximately $9.4 million as compared to $3.6 million in the 2004 period. In addition, the 2005 period has several projects in the early stage of production and thus lower revenue recognition. Our main sources of revenue for the period ended June 30, 2005 were our axle products, primarily VETAG axle test equipment, service and driveshaft assembly equipment which accounted for 44%, 23% and 12% of total revenue, respectively. For the same period in 2004, our axle and transmission products accounted for 66% and 23% of revenue, respectively.

Cost of Sales. Our cost of sales decreased by $0.8 million, or 25.1%, to $2.3 million for the period ended June 30, 2005 from $3.1 million for the comparable period in 2004. This decrease in cost of sales was primarily attributable to lower production of our specialty equipment. As a percentage of revenue, cost of sales increased to 106.3% in 2005 from 64% in 2004. This is a direct result of lower revenue as our fixed costs remained relatively constant in the 2005 period as compared to the 2004 period.

Gross Margin(loss). Our gross margin decreased $1.9 million, or 107.9%, to a loss of $0.1 million for the 2005 period from $1.7 million for 2004. As a percentage of sales, gross margin decreased to (6.3%) in 2005 from 35.8% in 2004. The dollar and percentage decrease in gross margin was primarily the result of the impact of fixed costs and lower revenue volume.

Research and Development Expenses. Our research and development expenses declined $0.6 million to 0.4 million for the period ended June 30, 2005 as compared to $1.0 million in the comparable 2004 period. As a percentage of sales our research and development expenses decreased to 16.5% of sales in 2005 from 20.4% in 2004.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased $0.3 million, or 27.8%, to $1.4 million for the period ended June 30, 2005 from $1.1 million for the 2004 period. This increase was primarily the result of increased staffing to execute our strategy and increased travel related to our sales and booking in Mexico and Korea.

Operating Loss. As a result of the foregoing factors, operating profit decreased $1.6 million to a loss of $1.9 million for the 2005 period from a loss of $0.4 million for 2004.

Other Income(Expense). Other income or expense decreased $0.7 million to zero for the 2005 period from an expense of $0.7 million for the same period in 2004. The increase in other income was primarily due the paydown of our credit facility to zero, the conversion of our subordinated debt and the investment in short term securities. These actions were the result of our successful initial public offering in the first quarter of 2005.

Income Tax Expense (Benefit). Our income tax benefit was $0.6 million for the period ended June 30, 2005 as compared to a benefit of $0.4 million in the 2004 period.

Net Loss. As a result of the foregoing factors, net loss from operations was $1.3 million in the 2005 period as compared to loss of $0.7 million in 2004.

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Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004

Revenue . Our revenue decreased by $1.7 million, or 61.5%, to $1.1 million for the period ended March 31, 2005 from $2.8 million for the same period in 2004. This decrease was primarily the result of decreased orders for our specialty equipment as well as the timing of revenue recognition. We recognize revenue based on the percentage of completion method for our specialty equipment, therefore, revenue is not recognized on an even basis. In the 2005 period we had several projects that were in the initial phases of design and therefore, did not result in significant revenue recognition. Our main sources of revenue for the period ended March 31, 2005 were our axle products, primarily VETAG axle test equipment, testing services and driveshaft assembly equipment which accounted for 42%, 19% and 11% of total revenue, respectively. For the same period in 2004, our axle, transmission and driveshaft products accounted for 69% and 27% of revenue, respectively.

Cost of Sales. Our cost of sales decreased by $0.3 million, or 19%, to $1.4 million for the period ended March 31, 2005 from $1.7 million for the comparable period in 2004. This decrease in cost of sales was primarily attributable to lower production of our specialty equipment. As a percentage of revenue, cost of sales increased to 128% in 2005 from 61% in 2004. This increase in cost of sales as a percentage of revenue was primarily the result of costs associated with manufacturing our virtual balancing equipment and fixed costs that do not vary with revenue volume. The costs related to manufacturing our virtual balancing products were primarily for materials as we continue to refine the manufacturing and operational processes, we anticipate that the cost of manufacturing these balancing products will decline over time. Our fixed costs remained relatively constant in the 2005 period as compared to the 2004 period which negatively impacted are cost of goods sold percentages as volume declined.

Gross Margin(loss). Our gross margin decreased $1.4 million, or 129%, to a loss of $0.3 million for the 2005 period from $1.1 million for 2004. As a percentage of sales, gross margin decreased to (28%) in 2005 from 39% in 2004. The dollar and percentage decrease in gross margin was primarily the result of of the impact of fixed costs and lower revenue volume and increased manufacturing costs associated with our virtual balancing equipment.

Research and Development Expenses. Our research and development expenses declined $0.4 million to $0.2 million for the period ended March 31, 2005 as compared to $0.6 million in the comparable 2004 period. As a percentage of sales our research and development expenses decreased to 18.1% of sales in 2005 from 23% in 2004.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased $0.2 million, or 36%, to $0.7 million for the period ended March 31, 2005 from $0.5 million for the 2004 period. This increase was primarily the result of increased staffing in order to implement our growth strategy of commercializing our testing services and manufacturing precision driveshafts.

Operating Profit (Loss). As a result of the foregoing factors, operating profit decreased $1.1 million to a loss of $0.8 million for the 2005 period from a loss of $0.1 million for 2004.

Interest Expense. Our interest expense decreased $0.3 million to $0.1 million for the 2005 period from $0.4 million for the same period in 2004. The decrease in interest expense was primarily due to reducing the balance under our credit facility to zero and the conversion of our subordinated debt. Both of these actions were the result of our completed initial public offering in the first quarter of 2005.

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Income Tax Expense( Benefit). Our income tax benefit was $0.4 million for the period ended March 31, 2005 as compared to a benefit of $0.1 million in the 2004 period.

Net Earnings (Loss). As a result of the foregoing factors, net loss from operations was $0.8 million in the 2005 period as compared to loss of $0.3 million in 2004.