The objective of this program is to develop a system to both monitor the vibration of a bottomhole assembly, and to adjust the properties of an active damper in response to these measured vibrations. Phase I of this program, which entailed modeling and design of the necessary subsystems and design, manufacture and test of a full laboratory prototype, was completed on May 31, 2004. The principal objectives of Phase II are: more extensive laboratory testing, including the evaluation of different feedback algorithms for control of the damper; design and manufacture of a field prototype system; and, testing of the field prototype in drilling laboratories and test wells. Work during this quarter centered on the testing of the rebuilt laboratory prototype and its conversion into a version that will be operable in the drilling tests at TerraTek Laboratories. In addition, formations for use in these tests were designed and constructed, and a test protocol was developed. The change in scope and no-cost extension of Phase II to January, 2006, described in our last report, were approved. The tests are scheduled to be run during the week of January 23, and should be completed before the end of the month.