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To: Carl Worth who wrote (27251)	12/30/2004 8:40:52 AM
From: GARY P GROBBEL	Read Replies (1) \| Respond to of 120415

CMPD Carl...this is the plan for the OsteoGram and many parts of it are already underway..and their proress on same is why i think 2005 will be the year they make real headway: During fiscal 2003, we altered the strategic direction for the OsteoGram(R) product, and throughout fiscal 2004 we implemented our new strategy. We believe that the future of our OsteoGram(R) technology is in the development of medical software applications for digital (filmless) imaging equipment, which is a high growth segment of the medical imaging field. The Digital Communications and Imaging in Medicine (DICOM) standards-based version of the OsteoGram(R) is our first product in this emerging arena. Although we believe that the underlying technology for the OsteoGram(R) can be applied to disease states beyond osteoporosis, we continue to maintain our focus on the manageable market segment of this bone disease. Our research and development team devoted the majority of their time this fiscal year becoming skilled at integrating our software application into several digital imaging platforms. As our knowledge base increased, we have become more adept at the integration process, and we expect to adapt our software to many more DICOM platforms in fiscal 2005. We also expect that numerous licensing agreements for our software will come to fruition, as imaging equipment manufacturers realize the value of placing an added reimbursable procedure for a prominent disease onto their workstations. A derivative of our integration efforts is the design and development of two new OsteoGram(R) products, the OsteoGram CADKit and the OsteoGram CADServer , both of which are add-on hardware for digital imaging equipment and networks. These products will house the current OsteoGram(R) software plus our future applications for arthritis, scoliosis, vertebral fracture assessment and software for screening osteoporosis on digital mammography equipment. We have also expanded our international distribution through country-specific distributors, and as we conclude the requisite work for obtaining our CE Mark, our distributors are preparing to launch the OsteoGram(R) in their respective countries. A CE Mark is the regulatory approval for the European Union and its related countries. Our efforts in the international arena continue. Rather than build our own global sales force, we use existing distribution channels that include a mix of manufacturers' direct sales representatives and local distributors. During fiscal 2004, we added distributors in the United Kingdom, Czech Republic, Italy, Benelux, Austria, Pakistan, and Croatia. Our distributors in the European Union are awaiting the issuance of our CE Mark to initiate sales, and we anticipate their contribution. The member countries to the European Union are of particular interest, since their conversion to filmless x-ray systems is far ahead of the U.S. market. In order to enter the European Union we will need to have a CE Mark, indicating that we have conformed to all the regulatory obligations required by European Union legislation. We expect to complete this process in early fiscal 2005. The Chinese market has been a disappointment in fiscal 2004. We experienced a slowing of sales for our older, film-based unit; however, we laid the groundwork for the introduction of our DICOM version of the OsteoGram by expanding distribution to include Siemens AG, Orex's local partner. In addition, we installed two prototypes of our new OsteoGram CADKit in hospital accounts in China. The units are functioning well and customer satisfaction is at a high level.