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<SEC-DOCUMENT>0001003297-03-000444.txt : 20031112
<SEC-HEADER>0001003297-03-000444.hdr.sgml : 20031111
<ACCEPTANCE-DATETIME>20031112081224
ACCESSION NUMBER:		0001003297-03-000444
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20030930
FILED AS OF DATE:		20031112

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PRO DEX INC
		CENTRAL INDEX KEY:			0000788920
		STANDARD INDUSTRIAL CLASSIFICATION:	WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047]
		IRS NUMBER:				841261240
		STATE OF INCORPORATION:			CO
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-14942
		FILM NUMBER:		03990576

	BUSINESS ADDRESS:	
		STREET 1:		MICRO MOTORS, INC.
		STREET 2:		151 EAST COLUMBINE
		CITY:			SANTA ANA
		STATE:			CA
		ZIP:			92707
		BUSINESS PHONE:		714-241-4411

	MAIL ADDRESS:	
		STREET 1:		MICRO MOTORS INC.
		STREET 2:		151 EAST COLUMBINE
		CITY:			SANTA ANA
		STATE:			CA
		ZIP:			92707
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>pdex10q1.htm
<TEXT>
<html>

<head>


<title> PRO DEX INC 10 QSB prepared by EDGAR2.COM<</title>



</head>

<body lang=EN-US link=blue vlink=purple style='text-justify-trim:punctuation'>

<p align=center style='text-align:center;text-autospace:none'>&nbsp;</p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='border-collapse:collapse'>
 <tr>
  <td width=720 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align="center">
  <b>UNITED STATES <br>
  SECURITIES AND EXCHANGE COMMISSION</b></p>
  <p align="center">
  <b>Washington, D.C. 20549</b></p>

  <p><b>&nbsp;</b></p>
  <p align=center style='text-align:center'><b>&nbsp;<font size="5">FORM
  10-QSB</font></b></p>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  <p style='margin-left:.75in;text-indent:-.75in;text-autospace:
  none'><b>[X]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
  Act of 1934.</b></p>
  <p style='text-autospace:none' align="center"><b>&nbsp;For
  the quarterly period ended  September 30, 2003</b></p>
  <p align=center style='text-align:center'><b>&nbsp;OR</b></p>
  <p style='text-autospace:none'><b>&nbsp;[&nbsp; ]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transition Report Pursuant to Section
  13 or 15(d) of the Securities Exchange<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Act of 1934.&nbsp;&nbsp; For the transition
  period from&nbsp; <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>to&nbsp;
  <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; .</u></b></p>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
</table>

<p style='text-autospace:none'><b>&nbsp;</b></p>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=721
 style='width:541.0pt;border-collapse:collapse'>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>Commission
  File Number&nbsp;&nbsp;&nbsp; 0-14942 </b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>
  <font size="5">PRO-DEX, INC.&nbsp;&nbsp;&nbsp; </font> </b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>(Exact
  name of small business issuer as specified in its
  charter)&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>Colorado </u></b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>84-1261240
  </u></b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>(State
  or Other Jurisdiction of&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>(IRS
  Employer Identification No.) </b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>Incorporation
  or Organization)&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>151
    E. Columbine Avenue,  Santa Ana,  California 92707&nbsp;&nbsp;&nbsp;  </u></b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>(Address
  of Principal Executive Offices)&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; &nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>Issuer's
  telephone number: <u>714 241 4411&nbsp;&nbsp;&nbsp; </u></b></p>
  </td>
 </tr>
</table>





<p style='text-align:justify;text-autospace:none'>Indicate by check mark whether the Registrant (1) has
filed all reports required by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety days.&nbsp;&nbsp;&nbsp; Yes [X] No [ ] </p>



<p style='text-autospace:none'>Indicate the number of shares outstanding of each
of the Registrant's classes of Common Stock outstanding as of the latest
practicable date:&nbsp; 8,776,600 shares of Common Stock, no par value, as of
November 1, 2003.
</p>



<p style='text-autospace:none'>Transitional
Small Business Disclosure Format:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Yes [&nbsp; ] No [X]</p>



<p style='text-autospace:none'>&nbsp;</p>



<p style='text-autospace:none' align="center">1</p>



<hr color="#000080"><br clear=all
style='page-break-before:always'>


<p><b>Item 1. &nbsp;&nbsp;&nbsp;&nbsp; Financial
Statements</b></p>



<p align=center style='margin-right:1.0in;text-align:center;
text-autospace:none'><b>PRO-DEX, INC. <br>
CONSOLIDATED BALANCE SHEETS </b></p>

<div align="left">



<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=624
 style='width:700;margin-left:5.4pt;border-collapse:collapse;border:medium none'>
 <tr style='page-break-inside:avoid'>
  <td width=380 valign=top style='width:284.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><b><font size="2">&nbsp;</font></b></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'><i><font size="2">September 30, 2003</font></i></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'><i><font size="2">June 30, 2003</font></i></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'><i><font size="2">&nbsp;(unaudited)</font></i></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'><i><font size="2">&nbsp;(audited)</font></i></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><b><font size="2">ASSETS</font></b></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Current assets:</font></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Cash and cash equivalents </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  609,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  795,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Accounts receivable, net of allowance for doubtful </font> </p>
  </td>
  <td width=125 valign=bottom style='width:93.9pt;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=bottom style='width:89.35pt;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  accounts of $50,000 and $30,000 </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,251,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,620,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Inventories, net </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,067,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,835,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Prepaid expenses </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;126,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;81,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Deferred taxes</font></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 750,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;770,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; Total current
  assets </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,803,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,101,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Equipment and leasehold
  improvements, net&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,040,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,040,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Other assets:</font></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Goodwill</font></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,110,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,110,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Deferred taxes </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 833,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 833,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Other </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 11,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 20,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; Total other assets
  </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,954,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,963,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total assets</font></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:double windowtext 1.5pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp; 9,797,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:double windowtext 1.5pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp; 9,104,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><b><font size="2">&nbsp;</font></b></p>
  <p><b><font size="2">LIABILITIES AND
  SHAREHOLDERS' EQUITY</font></b></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Current liabilities:</font></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Current portion of long term debt to shareholder
  </font>
  </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 60,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 65,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp; Credit line payable </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 716,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 432,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Accounts payable </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; 545,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;642,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp; Accrued expenses </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 508,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 349,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp; Income taxes payable </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 158,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 29,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp; Total current
  liabilities </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,987,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,517,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Long-term debt to a
  shareholder, net of current portion</font></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; &nbsp;134,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 145,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Total liabilities</font></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,121,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,662,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Commitments and
  contingencies </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Shareholders' equity:</font></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Series A convertible preferred shares; no par
  value; liquidation&nbsp;&nbsp; preference of $3.60 per share; 10,000,000 shares
  authorized; 78,129 shares issued and outstanding </font> </p>
  </td>
  <td width=125 valign=bottom style='width:93.9pt;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 283,000&nbsp;</font></p>
  </td>
  <td width=119 valign=bottom style='width:89.35pt;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp; 283,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Common shares; no par value; 50,000,000 shares
  authorized; 8,776,600 and 8,711,600 shares issued and outstanding,
  respectively </font> </p>
  </td>
  <td width=125 valign=bottom style='width:93.9pt;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; 15,033,000&nbsp;</font></p>
  </td>
  <td width=119 valign=bottom style='width:89.35pt;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; 14,999,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Accumulated deficit </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (7,596,000)</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (7,789,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,720,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,493,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Receivable for stock
  purchase </font> </p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (44,000)</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (51,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total shareholders' equity</font></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,676,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,442,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities
  and shareholders' equity</font></p>
  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp; 9,797,000&nbsp;</font></p>
  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp; 9,104,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=380 valign=top style='width:284.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=125 valign=top style='width:93.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=119 valign=top style='width:89.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
</table>

</div>

<p><i>See notes to consolidated financial statements.</i></p>



<p style='text-autospace:none'><b>&nbsp;</b></p>



<p style='text-autospace:none' align="center">2</p>

<b><hr color="#000080"><br clear=all
style='page-break-before:always'>
</b>

<p align=center style='text-align:center'><b>PRO-DEX, INC.<br>
CONSOLIDATED STATEMENTS
OF INCOME<br>
(Unaudited)</b></p>

<div align="left">



<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=561
 style='width:700;margin-left:0in;border-collapse:collapse;border:medium none' height="557">
 <tr style='page-break-inside:avoid'>
  <td width=348 rowspan=2 valign=top style='width:261.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="30">

  </td>
  <td width=213 colspan=2 valign=top style='width:159.75pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="14">
  <p align=center style='text-align:center'><i><font size="2">Three Months Ended September 30,</font></i></p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid'>
  <td width=108 valign=top style='width:81.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="14">
  <p align=center style='text-align:center'><i><font size="2">2003</font></i></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="14">
  <p align=center style='text-align:center'><i><font size="2">2002</font></i></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="17">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="17">

  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="17">

  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="13">
  <p><font size="2">Net sales </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp; 3,528,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp; 2,717,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="17">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="14">
  <p><font size="2">Cost of sales </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,987,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,567,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td width=348 valign=top style='width:261.0pt;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:13; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Gross profit </font> </p>
  </td>
  <td width=108 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:81.0pt;border-right:1.0pt solid windowtext;
  height:13; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,541,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:78.75pt;border-right:1.0pt solid windowtext;
  height:13; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,150,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td width=348 valign=top style='width:261.0pt;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:17; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width=108 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:81.0pt;border-right:1.0pt solid windowtext;
  height:17; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=105 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:78.75pt;border-right:1.0pt solid windowtext;
  height:17; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td width=348 valign=top style='width:261.0pt;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:17; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Operating expenses: </font> </p>
  </td>
  <td width=108 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:81.0pt;border-right:1.0pt solid windowtext;
  height:17; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
  <td width=105 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:78.75pt;border-right:1.0pt solid windowtext;
  height:17; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">

  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Selling </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 205,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 147,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; General and
  administrative expenses </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 614,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 588,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Research and
  development costs </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 387,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 385,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Amortization</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; --&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 32,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="13">
  <p><font size="2">Total operating expenses </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,206,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,152,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="18">

  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="18">

  </td>
  <td width=105 valign=top style='width:78.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="18">

  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="13">
  <p><font size="2">Income
  (loss) from operations </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 335,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="17">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="17">
  <p><font size="2">Other
  income (expense): </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Other income, net </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;6,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;6,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Interest (expense) </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; (19,000)</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (13,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="13">
  <p><font size="2">Total</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (13,000)</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp; (7,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="17">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="13">
  <p><font size="2">Income (loss) before provision
  for income taxes (credits) </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 322,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="13">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (9,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="17">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="14">
  <p><font size="2">Provision (credit) for
  income taxes</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; 129,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; (3,000)</font></p>
  </td>
 </tr>
 <tr style='height:9.0pt'>
  <td width=348 valign=top style='width:261.0pt;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:15; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net income (loss)</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:medium none;border-left:
  medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  height:16; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 193,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border-top:medium none;border-left:
  medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  height:16; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; (6,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="18">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
 </tr>
 <tr>
  <td width=348 valign=top style='width:261.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' height="14">
  <p><font size="2">Net income
  (loss) per share, basic </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $ &nbsp;&nbsp; 0.02&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $ &nbsp; (0.00)</font></p>
  </td>
 </tr>
 <tr style='height:13.9pt'>
  <td width=348 valign=bottom style='width:261.0pt;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:17; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net income
  (loss) per share, diluted </font> </p>
  </td>
  <td width=108 valign=bottom style='width:81.0pt;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:17; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp;&nbsp; 0.02&nbsp;</font></p>
  </td>
  <td width=105 valign=bottom style='width:78.75pt;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:17; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp; (0.00)</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 style='width:261.0pt;border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt' height="17">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
 </tr>
 <tr>
  <td width=348 style='width:261.0pt;border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt' height="14">
  <p><font size="2">Weighted average shares
  outstanding - basic</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,776,000&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="14">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; 8,785,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=348 style='width:261.0pt;border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt' height="17">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
  <td width=105 valign=top style='width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="17">

  </td>
 </tr>
 <tr>
  <td width=348 style='width:261.0pt;border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt' height="11">
  <p><font size="2">Weighted average shares
  outstanding - diluted</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="11">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,413,505&nbsp;</font></p>
  </td>
  <td width=105 valign=top style='width:78.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="11">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; 8,785,000&nbsp;</font></p>
  </td>
 </tr>
</table>



</div>



<p><i>See notes to consolidated financial statements.</i></p>



<p>&nbsp;</p>



<p align="center">3</p>



<hr color="#000080"><br clear=all
style='page-break-before:always'>




<p align=center style='text-align:center;text-autospace:none'><b>PRO-DEX,
INC. AND SUBSIDIARIES <br>
CONSOLIDATED STATEMENTS
OF CASH FLOWS<br>
(Unaudited)</b></p>

<div align="left">



<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='margin-left:5.4pt;border-collapse:collapse;border:none' width="700">
 <tr style='page-break-inside:avoid'>
  <td width=414 rowspan=2 valign=top style='width:310.5pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=216 colspan=2 valign=top style='width:2.25in;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'><i><font size="2">&nbsp;</font></i></p>
  <p align=center style='text-align:center'><i><font size="2">Three Months Ended September 30,</font></i></p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid'>
  <td width=108 valign=top style='width:81.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'><i><font size="2">2003</font></i></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'><i><font size="2">2002</font></i></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Cash Flows from Operating
  Activities: </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Net&nbsp; (loss)</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 193,000&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (6,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Adjustments to reconcile
  net (loss) to net &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; cash used in operating
  activities:</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Depreciation
  and amortization </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 90,000&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 113,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; (Recovery)
  provision for doubtful accounts </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 20,000&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (4,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; Reserve for
  obsolete inventory </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (122,000)</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (14,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-cash
  compensation </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,000&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred taxes
  </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 20,000&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; --&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Changes in:</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Increase)
  decrease in accounts receivable </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (651,000)</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 35,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Increase)
  decrease in inventories </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (110,000)</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 223,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Increase)
  in prepaid expenses </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (12,000)</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (45,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Increase)
  decrease in other assets</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,000&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (21,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Decrease)
  increase in accounts payable and accrued expense </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 34,000&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; (476,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;(Decrease)
  increase in income taxes payable </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 129,000&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (4,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Net Cash (used in)
  Operating Activities </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (393,000)</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; (192,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr style='height:10.75pt'>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:10.75pt'>
  <p><font size="2">Cash Flows From Investing
  Activities: </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:10.75pt' align="right">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:10.75pt' align="right">

  </td>
 </tr>
 <tr style='height:10.75pt'>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:10.75pt'>
  <p><font size="2">&nbsp;&nbsp; Proceeds from sale of
  discontinued operations </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:10.75pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; --&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:10.75pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 688,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">&nbsp;&nbsp; Purchases of equipment
  and leasehold improvements </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (90,000)</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (24,000)</font></p>
  </td>
 </tr>
 <tr style='height:5.35pt'>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:5.35pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:5.35pt' align="right">

  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:5.35pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Net Cash provided by (used
  in) Investing Activities </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;(90,000)</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 664,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Cash Flows from Financing
  Activities:</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'><font size="2">&nbsp;&nbsp;&nbsp;
  Principal payments on long-term shareholder borrowings </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (22,000)</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (65,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'><font size="2">&nbsp;&nbsp;&nbsp;
  Net borrowings (payments) on line of credit </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 284,000&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; (462,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'><font size="2">&nbsp;&nbsp;&nbsp;
  Proceeds from warrant exercise </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 35,000&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; --&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'><font size="2">&nbsp;&nbsp;&nbsp;
  Common stock repurchases </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; --&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Net Cash provided by (used
  in) Financing Activities</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 297,000&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; (529,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Net (decrease) in Cash and
  Cash Equivalents </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (186,000)</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (57,000)</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Cash and Cash Equivalents,
  beginning of period </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 795,000&nbsp;</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 236,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">&nbsp; </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Cash and Cash Equivalents,
  end of period </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp; 609,000</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp; 179,000&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
</table>



</div>



<p><i>Supplemental Information</i></p>



<div align="left">



<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='margin-left:5.4pt;border-collapse:collapse;border:none' width="700">
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Cash payments for interest</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">21,000</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">7,000</font></p>
  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=414 valign=top style='width:310.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><font size="2">Cash payments for income
  taxes </font> </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">4,000</font></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p><font size="2">2,000</font></p>
  </td>
 </tr>
</table>

</div>

<p><i>&nbsp;</i></p>

<p><i>See notes to consolidated financial statements.</i></p>



<p>&nbsp;</p>



<p align="center">4</p>



<b><hr color="#000080"><br clear=all
style='page-break-before:always'>
</b>

<p align=center style='text-align:center;text-autospace:none'><b>PRO-DEX,
INC. AND SUBSIDIARIES <br>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS </b></p>

<p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>

<p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>

<p style="text-autospace: none"><b>BASIS OF PRESENTATION</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in conjunction
with the audited financial statements presented in the Company's Annual Report
for the fiscal year ended June 30, 2003.&nbsp; In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The results of operations for such
interim periods are not necessarily indicative of the results that may be
expected for the full year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended June 30, 2003. </p>

<p style='text-autospace:none'><b>&nbsp;INVENTORIES</b></p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Inventories are stated at the lower of cost (the first-in, first-out method) or
market and consist of the following: </p>



<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=546
 style='width:409.75pt;border-collapse:collapse;border:none'>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-top:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>September 30, 2003<br>
  <u>(unaudited)
  </u></p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'><u><br>
  &nbsp;June 30, 2003</u>&nbsp;<u> </u></p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Raw materials </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 1,529,000 </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 1,443,000 </p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Work in process </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>426,000 </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>340,000 </p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Development costs under
  contract</p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>71,000</p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>181,000</p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Finished goods </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>1,311,000 </u></p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp; 1,263,000 </u></p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp; Total
  </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>3,337,000 </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>3,227,000 </p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Reserve for slow moving items </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (270,000) </u></p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp; (392,000) </u></p>
  </td>
 </tr>
 <tr>
  <td width=246 valign=top style='width:184.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp; Total
  inventories, net </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp; &nbsp; 3,067,000 </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>$&nbsp; 2,835,000 </p>
  </td>
 </tr>
</table>





<p style='text-autospace:none'><b>GOODWILL</b></p>



<p style='text-align:justify;text-indent:.5in'>On July 1, 2002 the Company adopted SFAS No. 142 &quot;Goodwill and Other Intangible Assets.&quot;&nbsp; SFAS No. 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>Management has
determined that each of the Company's subsidiaries is a reporting unit.&nbsp; Upon
adoption of SFAS No. 142, the Company assigned all the assets and liabilities
to the reporting units and has recorded no impairment charge in 2003.&nbsp; The
Company prepares its annual impairment testing on April 1 of each year.&nbsp; The
Company has compared the estimated carrying value of the Micro Motors
subsidiary with the estimated fair value of the subsidiary and determined that
none of the goodwill recorded as of April 1, 2003 was impaired.&nbsp;
Additionally, during the quarter ended September 30, 2003, management determined
that there are no events or circumstances which have occurred that would more
likely than not reduce the fair value of Micro Motors below its carrying value.</p>







<p style='text-align:justify;text-indent:.5in'>&nbsp;</p>







<p style='text-align:center;'>5</p>







<b><hr color="#000080">
<p><br clear=all
style='page-break-before:always'>
</b>

</p>
<p><b>STOCK REPURCHASE PLAN</b></p>



<p style='text-align:justify;text-indent:.5in'>In September
2002, the Company's Board of Directors authorized the repurchase on the open
market of up to 500,000 shares of the Company's outstanding Common Stock,
subject to compliance with applicable laws and regulations.&nbsp; There is no
requirement that the Company repurchase all or any portion of such shares.&nbsp; The
maximum total value of the repurchase is not to exceed $500,000.&nbsp; The maximum
price per share that can be paid is $1.25.&nbsp; The repurchase is to be financed
both with cash generated by operations and through the utilization of the
Company's credit facility.&nbsp; From the inception of the repurchase authorization
through the year-end date of June 30, 2003, the Company repurchased 75,700
shares of Common Stock for $43,741, at an average price of $0.58 per share.&nbsp;
No additional shares were repurchased in the quarter ending September 30, 2003.</p>

<p style='text-autospace:none'><b>&nbsp;</b></p>

<p style='text-autospace:none'><b>NET INCOME (LOSS) PER SHARE</b></p>



<p style='margin-top:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table reconciles the weighted average shares outstanding for basic
and diluted net income per share for the periods indicated.</p>



<div align="left">



<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=624
 style='width:7.25in;margin-left:18.9pt;border-collapse:collapse;border:medium none; '>
 <tr style='page-break-inside:avoid'>
  <td width=375 valign=top style='width:281.4pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=249 colspan=2 valign=top style='width:186.6pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>Three Months Ended
  September 30,</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td width=120 valign=top style='width:1.25in;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>2002</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=120 valign=top style='width:1.25in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Net
  income (loss)</p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 193,000</p>
  </td>
  <td width=120 valign=top style='width:1.25in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (6,000)</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Basic net income (loss) per common share:</p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=120 valign=top style='width:1.25in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp; Weighted average of common shares outstanding &nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,776,600</p>
  </td>
  <td width=120 valign=top style='width:1.25in;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>&nbsp;&nbsp; 8,785,000</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Basic net income (loss) per common share&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.02</p>
  </td>
  <td width=120 valign=top style='width:1.25in;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=120 valign=top style='width:1.25in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Diluted net income
  (loss) per share:</p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=120 valign=top style='width:1.25in;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp; Weighted average of common shares outstanding&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,776,600</p>
  </td>
  <td width=120 valign=top style='width:1.25in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp; &nbsp; &nbsp;&nbsp;&nbsp;8,785,000</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities
  (options)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=left style='margin-top:0in;text-align:left;page-break-after:
  auto'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 522,865</p>
  </td>
  <td width=120 valign=top style='width:1.25in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; --</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities
  (warrants)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 35,911</p>
  </td>
  <td width=120 valign=top style='width:1.25in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; --</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities
  (convertible<br>
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Preferred Shares)</p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp; <br>
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 78,129</p>
  </td>
  <td width=120 valign=top style='width:1.25in;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;
  <br>
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; --</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Weighted average number of common and shares - Diluted</p>
  </td>
  <td width=129 valign=bottom style='width:96.6pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,413,505</p>
  </td>
  <td width=120 valign=bottom style='width:1.25in;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; 8,785,000</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Diluted net income (loss) per common share</p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;0.02</p>
  </td>
  <td width=120 valign=top style='width:1.25in;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
 </tr>
</table>



</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Common shares issuable upon conversion of 78,129 shares of preferred
stock have not been included in the 2002 computation because their inclusion
would have been anti-dilutive.&nbsp; In addition, common shares issuable upon conversion
of 85,674 common stock options have not been included in the 2002 computation
because their inclusion would have been anti-dilutive.&nbsp; </p>



<p style='text-autospace:none'><b>LINE OF CREDIT AND SUBSEQUENT
EVENT</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The subsidiaries of the Company entered into a credit facility with Wells
Fargo Business Credit Inc. (WFBCI) in May 2002 for borrowings up to the lesser
of $3,000,000 or the total of the eligible accounts receivable.&nbsp; The terms of
the credit facility expire May 2005 and require monthly interest payments at
the prime rate (4.00% at September 30, 2003) plus 1.00% to 1.75% based on
outstanding borrowings, with a minimum interest charge of $12,500 per quarter.&nbsp;
The outstanding borrowings are secured by all assets of the Company's two
subsidiaries, Micro Motors and OMS, and are guaranteed by the Company.&nbsp; The
outstanding balance under the terms of this credit facility as of September 30, 2003 was $716,000.&nbsp;
The total additional eligible borrowing capacity based on the receivables
balances at September 30, 2003 was $943,000.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>



<p style='text-align:center;text-autospace:
none'>6</p>



<b><hr color="#000080">
<p><br clear=all
style='page-break-before:always'>
</b>

</p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>There are certain financial and non-financial covenants that the Company
must meet to be in compliance with the terms of the credit facility.At September 30, 2003 the Company was in compliance with all covenants.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>On October 29, 2003, the credit facility with WFBCI was refinanced by
Wells Fargo Bank, N.A. (Wells Fargo) for borrowings up to the lesser of
$2,000,000 or the total of the eligible accounts receivable.&nbsp; The terms of the
credit facility expire October 2004 and require monthly interest payments at
the prime rate (4.00% at September 30, 2003) or LIBOR plus 2.75% based on
outstanding borrowings, with a no minimum interest charge.&nbsp; The outstanding
borrowings are secured by all assets of the Company's two subsidiaries, Micro
Motors and OMS, and are guaranteed by the Company.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>There are certain financial and non-financial covenants that the Company
must meet to be in compliance with the terms of the new credit facility. </p>

<p style='text-autospace:none'><b>LONG TERM DEBT TO SHAREHOLDER</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Long-term debt is comprised of a $550,000 Not to Compete liability offset
by a $334,000 Note Receivable asset.&nbsp; The interest rate on both is 7%
annually.&nbsp; The Note Receivable is collateralized by the Not to Compete
liability.&nbsp; The following tables summarize the remaining net principal values
of these instruments classified as long-term debt:</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=560
 style='width:419.9pt;margin-left:-1.45in;border-collapse:collapse'>
 <tr>
  <td width=436 valign=top style='width:326.95pt;border:solid windowtext 1.0pt;
  border-right:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Total Not to Compete payable</p>
  </td>
  <td width=124 valign=top style='width:92.95pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp;&nbsp;&nbsp; 550,000</p>
  </td>
 </tr>
 <tr>
  <td width=436 valign=top style='width:326.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Less: interest portion </p>
  </td>
  <td width=124 valign=top style='width:92.95pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp; <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  54,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=436 valign=top style='width:326.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Net Not to Compete payable</p>
  </td>
  <td width=124 valign=top style='width:92.95pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp; <u>&nbsp;&nbsp; $ &nbsp;&nbsp;&nbsp; 496,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=436 valign=top style='width:326.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  &nbsp;</td>
  <td width=124 valign=top style='width:92.95pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  &nbsp;</td>
 </tr>
</table>

</div>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=560
 style='width:419.9pt;margin-left:-1.45in;border-collapse:collapse'>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border:solid windowtext 1.0pt;
  border-right:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Total Note Receivable</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp;&nbsp;&nbsp; 334,000</p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Less: interest portion </p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp; <u>&nbsp;&nbsp;&nbsp;
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;32,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Net Note Receivable</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp; <u>&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp;&nbsp;&nbsp;
  302,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  &nbsp;</td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  &nbsp;</td>
 </tr>
</table>

</div>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=560
 style='width:419.9pt;margin-left:-1.45in;border-collapse:collapse'>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border:solid windowtext 1.0pt;
  border-right:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Net Not to Compete payable</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp;&nbsp;&nbsp; 496,000</p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Less: Net Note Receivable</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp; <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  302,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Total Net Debt to shareholder</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=center style='text-align:right;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 194,000</u></p>
  </td>
 </tr>
</table>

</div>

<p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The following table is a summary of the remaining net principal values of
these instruments classified as long-term debt:</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=560
 style='width:419.9pt;margin-left:-104.65pt;border-collapse:collapse'>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border:solid windowtext 1.0pt;
  border-right:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Unsecured Net Debt to a
  shareholder, bearing interest at 7%, payments of $19,600 quarterly, including
  interest to June 30, 2006</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>

  <p align=right style='text-align:right;text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  194,000</p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Less net current portion </p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'><u>60,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Net Long-term debt </p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'><u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  134,000</u></p>
  </td>
 </tr>
</table>

</div>

<p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>

<p style='text-indent:.5in;text-autospace:none'>This debt is
subordinated to the lines of credit with WFBCI and Wells Fargo.</p>

<p style='text-autospace:none' align="center">&nbsp;7</p>

<b><hr color="#000080"><br clear=all style='page-break-before:always'>
</b>

<p style='text-autospace:none'><b>INCOME TAXES</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Deferred income taxes are provided on a liability method whereby deferred
tax assets and liabilities are recognized for temporary differences.&nbsp; Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases.&nbsp; Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.&nbsp; The Company has net operating
loss carry forwards of $27,000 for Federal and $2,012,000 for State income tax
purposes.&nbsp; Federal loss carry forwards expire in 2023 and State carry forwards
expire in 2012.&nbsp; Tax credit carry forwards totaling $421,000 for federal
tax purposes and $213,000 for state tax purposes do not expire.</p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Significant
management judgment is required in determining our provision for income taxes
and the recoverability of our deferred tax asset.&nbsp; It is based on our estimates
of future taxable income by jurisdiction in which we operate and the period
over which our deferred tax assets will be recoverable.&nbsp; In the event that
actual results differ from these estimates or we adjust these estimates in
future periods we may need to establish a valuation allowance which could result
in a tax provision equal to the carrying value of our deferred tax assets.</p>

<p style='text-autospace:none'><b>STOCK OPTIONS AND WARRANTS </b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>During the quarter ended September 30, 2003, the Company granted 60,000
Common Stock Options under the Director's Plan at the average exercise price of
$1.54 (fair market value of $0.98), and no Common Stock Options under the
Employee's Plan. The options granted under the Directors plans vest after a
period of 6 months.&nbsp; The options granted under both the Directors and
Employees plans expire ten years from the date of the grant.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>During the quarter ended September 30, 2003, no Common Stock Options under
the Employee's Plan expired unused. </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>During the quarter ended September 30, 2003, the Company granted no
Common Stock Warrants.&nbsp; In August, 2003, warrants granted in October 2002 to
Mr. Robert Hovee, a former Director, representing 65,000 common shares were
exercised in full at a price of $0.54 for a total of $35,100. </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: no dividend rate for all years; price volatility of 75% to 77%;
risk-free interest rates of approximately 2.5% to 3.5%; and expected lives of
five years for the options and seven years for the warrants.</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=693
 style='width:519.75pt;margin-left:4.5pt;border-collapse:collapse;border:none'>
 <tr style='page-break-inside:avoid'>
  <td style='border:none;padding:0in 0in 0in 0in' width=1><p>&nbsp;</td>
  <td width=200 colspan=2 valign=top style='width:150.0pt;border:none;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=220 colspan=2 valign=top style='width:165.0pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=272 colspan=3 valign=top style='width:204.0pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>Three Months Ended
  September 30,</p>
  </td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border:none;
  border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>2002</p>
  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Net
  income (loss) As reported:</p>
  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>

  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 193,000</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (6,000)</p>
  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
  <p>Add stock-based
  employee compensation expense included in reported net income, net of related
  tax effects</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>



  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ---</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ---</p>

  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
  <p>(Deduct) total
  stock-based employee compensation expense determined under fair value based
  method for all awards, net of related tax effects</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>



  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  ---</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'><u>&nbsp; (40,000)</u></p>
  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Pro-forma net income (loss):</p>
  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><u>$&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;193,000</u></p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><u>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(46,000)</u></p>
  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Basic earnings (loss) per </p>
  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>share:</p>
  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>As reported</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;0.02</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.00)</p>
  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=bottom style='width:149.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Pro forma</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;0.02</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Diluted earnings (loss) </p>
  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;</p>
  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>per share:</p>
  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
  <p>As reported</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; &nbsp;0.02</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.00)</p>
  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=bottom style='width:149.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Pro forma</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; &nbsp;0.02</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.00)</p>
  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr height=0>
  <td width=1 style='border:none'></td>
  <td width=198 style='border:none'></td>
  <td width=2 style='border:none'></td>
  <td width=219 style='border:none'></td>
  <td width=1 style='border:none'></td>
  <td width=140 style='border:none'></td>
  <td width=130 style='border:none'></td>
  <td width=2 style='border:none'></td>
 </tr>
</table>

</div>



<p style='text-autospace:none' align="center">8</p>



<b><hr color="#000080">
<p><br clear=all
style='page-break-before:always'>
</b>

</p>



<p style='text-autospace:none'><b>FUNDS HELD IN ESCROW, NET,
BUSINESS DIVESTITURES AND DISCONTINUED OPERATIONS</b></p>

<p style='text-autospace:none'><b>&nbsp;</b></p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>On June 12, 2001, the Company sold substantially all of the assets of its
wholly owned subsidiaries, Biotrol International, Inc. and Challenge Products,
Inc. to Young Colorado, LLC, for a purchase price of $9 million. The assets
sold comprised the Company's line of infection control and preventive chemical
products for the dental industry.&nbsp; The Company received $688,000 of the
remaining escrow balance of $790,000 in the quarter ending September 30, 2002, and the remaining $122,000 was received by October 2002, resulting in no
additional gain or loss, completing the distribution of funds in escrow.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>During the year ended June 30, 2002, the Company received indemnification
notices from Young, to recover alleged losses and costs as they are incurred
for certain alleged breaches of representations and warranties contained in the
Young Asset Purchase Agreement related to compliance issues with the Food,
Drug, and Cosmetic Act (&quot;FDCA&quot;), Federal Insecticide, Fungicide and Rodentcide
Act (&quot;FIFRA&quot;), and other related laws.&nbsp; In February 2002, the Company settled a
complaint with the Environmental Protection Agency (&quot;EPA&quot;) set forth in Young's
indemnification notice for alleged violations of FIFRA.&nbsp; Pursuant to the
settlement, the Company agreed to pay $150,000 to the EPA, over a 15-month
period, commencing March 2002.&nbsp; The full $150,000 settlement had been paid
by April 30, 2003, leaving in managements' opinion, no additional liability
under either Act.</p>

<p style='text-autospace:none'><b>&nbsp;</b></p>

<p style='text-autospace:none'>&nbsp;</p>

<p style='text-autospace:none'>&nbsp;</p>

<p style='text-autospace:none' align="center">9</p>

<b><hr color="#000080"><br clear=all
style='page-break-before:always'>
</b>

<p style='text-autospace:none'><b>SEGMENT INFORMATION </b></p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Company's reportable segments are strategic business units that offer different
products and services.&nbsp; There are two reportable segments within Pro-Dex: Micro
Motors and Oregon Micro Systems. The accounting policies applied to determine
the segment information are the same as those described in the summary of
significant accounting policies. Interest expense is allocated based upon the
specific identification of debt incurred by the individual segment. Corporate
overhead, the provision for income taxes, and loss from discontinued operations
are included in corporate profit, and are not allocated to the individual
reported segments.&nbsp; Intersegment sales and transfers are accounted for at
amounts that management believes provides the transferring segment with fair
compensation for the products transferred, considering their condition, market
demand, and, where appropriate, a reasonable profit that recognizes which
segment will be responsible for marketing costs.&nbsp; Management evaluates the
performance of each segment based on operating income (loss) before interest and
income taxes. </p>



<p style='text-indent:.5in;text-autospace:none'>Operating
Segment data (unaudited) for the three months ending September 30, 2003 and 2002 is as follows (in thousands): </p>



<div align="left">



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=619
 style='width:700;border-collapse:collapse'>
 <tr>
  <td width=204 valign=bottom style='width:153.0pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  months ended <br>
  September, 2003</p>
  </td>
  <td width=84 valign=bottom style='width:63.25pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Micro<br>
  Motors </p>
  </td>
  <td width=132 valign=bottom style='width:99.0pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Oregon<br>
  Micro
  Systems </p>
  </td>
  <td width=103 valign=bottom style='width:77.35pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  <p align=center style='text-align:center;text-autospace:none'>Corporate
  </p>
  </td>
  <td width=96 valign=bottom style='width:1.0in;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  <p align=center style='text-align:center;text-autospace:none'>Total</p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:153.0pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Sales from external customers </p>
  </td>
  <td width=84 valign=top style='width:63.25pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$2,807 </p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$721 </p>
  </td>
  <td width=103 valign=top style='width:77.35pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>$3,528 </p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:153.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Depreciation and amortization </p>
  </td>
  <td width=84 valign=top style='width:63.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>76</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>14</p>
  </td>
  <td width=103 valign=top style='width:77.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>90</p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:153.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Interest expense </p>
  </td>
  <td width=84 valign=top style='width:63.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>17</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>2</p>
  </td>
  <td width=103 valign=top style='width:77.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>19 </p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:153.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Segment operating profit
  (loss) </p>
  </td>
  <td width=84 valign=top style='width:63.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>338</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>199 </p>
  </td>
  <td width=103 valign=top style='width:77.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>(202) </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>335 </p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:153.0pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Segment assets </p>
  </td>
  <td width=84 valign=top style='width:63.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>6,533</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>1,592 </p>
  </td>
  <td width=103 valign=top style='width:77.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>1,672</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>9,797 </p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:153.0pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Expenditure for segment assets
  </p>
  </td>
  <td width=84 valign=top style='width:63.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>84 </p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>6 </p>
  </td>
  <td width=103 valign=top style='width:77.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in' align="right">
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>90</p>
  </td>
 </tr>
</table>



</div>

<p style='text-autospace:none'><b>&nbsp;</b></p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=624
 style='width:700;border-collapse:collapse'>
 <tr>
  <td width=204 valign=bottom style='width:152.95pt;border:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  months ended<br>
&nbsp;September, 2002</p>
  </td>
  <td width=90 valign=bottom style='width:67.45pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Micro<br>
  Motors </p>
  </td>
  <td width=126 valign=bottom style='width:94.85pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Oregon<br>
  Micro
  Systems </p>
  </td>
  <td width=106 valign=bottom style='width:79.6pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>

  <p align=center style='text-align:center;text-autospace:none'>Corporate</p>
  </td>
  <td width=96 valign=bottom style='width:71.9pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>

  <p align=center style='text-align:center;text-autospace:none'>Total</p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:152.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Sales from external customers </p>
  </td>
  <td width=90 valign=top style='width:67.45pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.15pt;text-align:right;
  text-autospace:none'>$2,077 </p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$640 </p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:7.6pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td width=96 valign=top style='width:71.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.0pt;text-align:right;
  text-autospace:none'>$2,717 </p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:152.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Depreciation and amortization </p>
  </td>
  <td width=90 valign=top style='width:67.45pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.15pt;text-align:right;
  text-autospace:none'>70</p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>43</p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:7.6pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td width=96 valign=top style='width:71.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.0pt;text-align:right;
  text-autospace:none'>113</p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:152.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Interest expense </p>
  </td>
  <td width=90 valign=top style='width:67.45pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.15pt;text-align:right;
  text-autospace:none'>13</p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:7.6pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td width=96 valign=top style='width:71.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.0pt;text-align:right;
  text-autospace:none'>13 </p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:152.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Segment operating profit
  (loss)</p>
  </td>
  <td width=90 valign=top style='width:67.45pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.15pt;text-align:right;
  text-autospace:none'>152</p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>71 </p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:7.6pt;text-align:right;
  text-autospace:none'>(225) </p>
  </td>
  <td width=96 valign=top style='width:71.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.0pt;text-align:right;
  text-autospace:none'>(2) </p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:152.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Segment assets </p>
  </td>
  <td width=90 valign=top style='width:67.45pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.15pt;text-align:right;
  text-autospace:none'>5,560</p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>1,069 </p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:7.6pt;text-align:right;
  text-autospace:none'>2,331</p>
  </td>
  <td width=96 valign=top style='width:71.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.0pt;text-align:right;
  text-autospace:none'>8,960 </p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top style='width:152.95pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Expenditure for segment assets
  </p>
  </td>
  <td width=90 valign=top style='width:67.45pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.15pt;text-align:right;
  text-autospace:none'>15 </p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>9 </p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:7.6pt;text-align:right;
  text-autospace:none'>--</p>
  </td>
  <td width=96 valign=top style='width:71.9pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:3.0pt;text-align:right;
  text-autospace:none'>24</p>
  </td>
 </tr>
</table>

<p style='text-autospace:none'><b>&nbsp;</b></p>

<p style='text-autospace:none'><b>Item 2. Management's
Discussion and Analysis </b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The following discussion and analysis provides information that the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition for each of the two
three month periods ended September 30, 2002 and 2003, respectively.&nbsp; This
discussion should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere in this Report. This Report
contains certain forward-looking statements and information. The cautionary
statements included herein should be read as being applicable to all related
forward-looking statements wherever they may appear.&nbsp; The Company's actual
future results could differ materially from those discussed herein.&nbsp; The
Company's critical accounting policies relate to inventory valuation for slow
moving items, allowance for funds in escrow, impairment of goodwill, and
recoverability of deferred income taxes.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>



<p style='text-align:center;text-autospace:
none'>10</p>



<b><hr color="#000080">
<p><br clear=all
style='page-break-before:always'>
</b>

</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Except for the historical information contained herein, the matters
discussed in this Quarterly Report on Form 10-QSB, including discussions of the
Company's product development plans, business strategies and market factors
influencing the Company's results, are forward-looking statements that involve
certain risks and uncertainties. Actual results may differ from those
anticipated by the Company as a result of various factors, both foreseen and
unforeseen, including, but not limited to, the Company's ability to continue to
develop new products and increase systems sales in markets characterized by
rapid technological evolution, consolidation within the Company's target
marketplace and among the Company's competitors, and competition from larger,
better capitalized competitors. Many other economic, competitive, governmental
and technological factors could impact the Company's ability to achieve its
goals.&nbsp; Interested persons are urged to review the risks described herein,
as well as in the Company's other public disclosures and filings with the
Securities and Exchange Commission.</p>



<p style="text-align: justify; text-autospace: none"><b>COMPANY OVERVIEW</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Pro-Dex, Inc. (&quot;Pro-Dex&quot; or the &quot;Company&quot;) is a Colorado
corporation, organized in 1978, currently doing business through two wholly
owned operating subsidiaries, Micro Motors, Inc. (&quot;Micro Motors&quot;) and
Oregon Micro Systems, Inc. (&quot;OMS&quot;).&nbsp; Micro Motors, headquartered in Santa
  Ana, California, designs, develops and manufactures electric, air, and
battery-powered rotary drive systems for the medical device industry, electric
and air devices for the dental industry, and miniature pneumatic motors for
industrial applications.&nbsp; OMS is headquartered in Beaverton, Oregon, where
it designs and manufactures embedded multi-axis motion controllers used to
regulate the motion of servo and stepper motors, predominantly for the
semiconductor and medical analysis equipment industries. </p>



<p style='text-align:justify;text-indent:.5in'>Over the past
three years, the Company has evolved significantly in response to changing
market conditions.&nbsp; This evolution includes the strategic refocusing of the
Company's subsidiaries, the development of new products, technologies and
customer relationships, the re-casting of operational infrastructure, the
divestiture of segments of the Company's operations, and the consolidation of
the Company's executive offices and staff.&nbsp; In addition, the Company is
aggressively pursuing opportunities to leverage the strategic synergies of the
subsidiaries, increasing the interaction between the subsidiaries and better
aligning the overall strategic direction of the Company.</p>



<p><b>Pro-Dex</b></p>



<p style='text-align:justify;text-indent:.5in'>Pro-Dex has
continued to evolve since the divestiture of the Company's Biotrol and
Challenge subsidiaries in June of 2001.&nbsp; The proceeds from that transaction
were used to retire all of the Company's then existing bank debt, leaving the
Company virtually debt free as of June 30, 2001, and less than half its former
size.&nbsp; In response to the reduction in the Company's operations, the Company's
executive operations in Colorado were consolidated into the Micro Motors
facilities in Santa Ana, California.&nbsp; This effort to reduce corporate
overhead saved the Company approximately $980,000 in fiscal year 2003 as
compared to fiscal year 2002.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The Company's principal headquarters are located at 151 E. Columbine
  Avenue, Santa Ana, California 92707 and its phone number is 714-241-4411.&nbsp;
The Company's internet address is <font color="#0000FF">www.pro-dex.com</font>.&nbsp;
The Company's annual reports on Form 10-KSB, quarterly reports on Form 10-QSB,
current reports on Form 8-K, amendments to those reports and other Securities
and Exchange Commission (&quot;SEC&quot;) filings are available free of charge through our
website as soon as reasonably practicable after such reports are electronically
filed with, or furnished to, the SEC.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>



<p style='text-align:center;text-autospace:
none'>11</p>



<b><hr color="#000080"><br clear=all
style='page-break-before:always'>
</b>

<p><b>Description of Business of the Subsidiaries</b></p>

<p><b>Micro Motors</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Micro Motors, headquartered in Santa Ana, California, designs, develops
and manufactures electric, air, and battery-powered rotary drive systems for
the medical device industry, electric and air devices for the dental industry,
and miniature pneumatic motors for industrial applications.&nbsp; Micro Motors also
distributes its own line of pneumatic and electric dental hand pieces sold
under the trademarks Dynatorq&trade;, Dynasurg&trade;, and Micro Handpiece&trade; through a
network of independent sales representatives across North America.&nbsp; In
addition, Micro Motors has developed and sells numerous private label rotary
drive systems for use in dental, cranial, spinal, arthroscopic and orthopedic
surgery. Micro Motors also designs and manufactures miniature pneumatic motors
for industrial applications in the automotive, aerospace, apparel and
entertainment industries.</p>



<p style='text-align:justify;text-indent:.5in'>Significant
aspects of the Micro Motors subsidiary have changed in the last three years.&nbsp;
Historically known as a precision manufacturer of dental hand pieces, Micro
Motors has shifted its focus to the development and exclusive supply of rotary
drive systems for strategic partners in the medical, dental and industrial
segments of the commercial marketplace.&nbsp; This new approach to the market
has proved to be effective in generating new revenue streams with gross margins
significantly higher than Micro Motor's historical business.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Company-funded research and development supports the development of
rotary drive platforms.&nbsp; Micro Motors then seeks customer-funded projects to
customize these platforms to specific customer requirements. Company-funded
research and development projects generally are expected to convert to
customer-funded projects within six months.</p>



<p style='margin-left:0in;text-align:justify;
text-indent:.5in'>Company-funded project costs are expensed as incurred.&nbsp; In
customer-funded development projects, costs are capitalized and recognized as a
cost of goods sold as specific deliverables within the development contracts
are made, matching the costs to the revenue and reducing the performance and
collection risk to the Company.&nbsp; The results of the development work are
intended to provide the Company with long-term exclusive manufacturing
agreements and provide the customer with retention of the intellectual property
developed.&nbsp; The identity of the customer is generally protected by a
non-disclosure agreement.</p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Internally, Micro Motors has consolidated its operations and reduced the
expenses related to those operations, while continuing to grow overall sales
and develop new products.&nbsp; Since 1999, such measures include reducing its
workforce by 30% and consolidating its manufacturing operations to a 20,000
square foot facility from a 38,000 square foot facility.&nbsp; At the same time,
Micro Motors has increased the size of its Engineering and Product Development
Group, further enabling it to respond to market demands for new products and new
technologies.</p>



<p style='text-align:justify;text-indent:.5in'>Micro Motors'
revenue is derived from three main market segments: Dental, Medical and
Industrial.&nbsp; Micro Motors dental products are sold to original equipment
manufacturers and dental product distributors.&nbsp; An independent dealer network
was established in 2003 to market its own branded line of dental products in a
more effective manner.&nbsp; Micro Motors medical products sales represent the
manufacture of proprietary designs developed by Micro Motors under exclusive
design and supply agreements.&nbsp; Micro Motors pneumatic motors for industrial
applications are marketed directly to end-users and through industrial supply
distributors.&nbsp; The increase in the percent of sales of medical products and the
decrease in the percentage of sales of dental product sales is a direct result
of the shift in the focus of the Company's research and development efforts
away from dental products and toward the Company's capabilities in the medical
product market.&nbsp;&nbsp; The proportion of Micro Motors total sales to each market
segment is noted in the table below:</p>







<p style='text-align:justify;text-indent:.5in'>&nbsp;</p>







<p style='text-align:center;'>12</p>







<b><hr color="#000080">
<p><br clear=all
style='page-break-before:always'>
</b>

</p>







<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:-14.75pt;border-collapse:collapse'>
 <tr>
  <td width=224 valign=bottom style='width:168.1pt;border:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>&nbsp;</p>
  <p style='text-autospace:none'><b><u>Micro Motors Market
  Segment </u></b></p>
  </td>
  <td width=68 valign=bottom style='width:50.75pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>Q1<br>
  FY
  2004</u></b></p>
  </td>
  <td width=72 valign=bottom style='width:.75in;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>Q1<br>
  FY
  2003</u></b></p>
  </td>
  <td width=24 valign=bottom style='width:.25in;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  &nbsp;</td>
  <td width=66 valign=bottom style='width:49.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>FY
  2003</u></b></p>
  </td>
  <td width=84 valign=bottom style='width:63.0pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>FY
  2002</u></b></p>
  </td>
 </tr>
 <tr>
  <td width=224 valign=top style='width:168.1pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Dental</p>
  </td>
  <td width=68 valign=top style='width:50.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>42%
  </p>
  </td>
  <td width=72 valign=top style='width:.75in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>50%
  </p>
  </td>
  <td width=24 valign=top style='width:.25in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=66 valign=top style='width:49.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>56%
  </p>
  </td>
  <td width=84 valign=top style='width:63.0pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>68%
  </p>
  </td>
 </tr>
 <tr>
  <td width=224 valign=top style='width:168.1pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Medical</p>
  </td>
  <td width=68 valign=top style='width:50.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>48%</p>
  </td>
  <td width=72 valign=top style='width:.75in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>39%
  </p>
  </td>
  <td width=24 valign=top style='width:.25in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=66 valign=top style='width:49.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>31%</p>
  </td>
  <td width=84 valign=top style='width:63.0pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>15%
  </p>
  </td>
 </tr>
 <tr>
  <td width=224 valign=top style='width:168.1pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Industrial</p>
  </td>
  <td width=68 valign=top style='width:50.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>5%
  </p>
  </td>
  <td width=72 valign=top style='width:.75in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>7%
  </p>
  </td>
  <td width=24 valign=top style='width:.25in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=66 valign=top style='width:49.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>8%
  </p>
  </td>
  <td width=84 valign=top style='width:63.0pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>11%
  </p>
  </td>
 </tr>
 <tr>
  <td width=224 valign=top style='width:168.1pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Other</p>
  </td>
  <td width=68 valign=top style='width:50.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>5%</p>
  </td>
  <td width=72 valign=top style='width:.75in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>4%</p>
  </td>
  <td width=24 valign=top style='width:.25in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=66 valign=top style='width:49.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>5%</p>
  </td>
  <td width=84 valign=top style='width:63.0pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>6%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Of Micro Motors sales in 2003, over 30% were shipments of products
developed in the last 12 months and 45% were shipments of products developed in
the last 24 months as a result of Research and Development contracts with new or
existing customers. </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Micro Motors' commitment to quality manufacturing is demonstrated by its
many independently verified certifications for maintaining quality processes
and products.&nbsp; Micro Motors holds the following certifications: ISO
9001:2000, ISO 13485 revised 1998, and Medical Device Directive 93\42\EEC Annex
II company.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>At the present time, Micro Motors is generally able to fill orders within
sixty (60) days.&nbsp; At September 30, 2003, Micro Motors had an order backlog,
including orders for delivery beyond 60 days, of $4.2 million compared with an
order backlog of $1.8 million at September 30, 2002.&nbsp; Micro Motors expects to
ship its entire backlog during the current fiscal year.&nbsp; Micro Motors does
not typically experience seasonal fluctuations in its orders. </p>



<p><b>Oregon Micro Systems</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>OMS is headquartered in Beaverton, Oregon, where it designs and
manufactures embedded multi-axis motion controllers used to regulate the motion
of servo and stepper motors, predominantly for the semiconductor and medical
analysis equipment industries.&nbsp; OMS' motion controllers are used in a wide
range of applications including semiconductor wafer handling equipment, medical
diagnostic equipment, photon accelerators and observatories. The OMS
controllers support the platforms for PCI, VME, ISA, and cPCI busses as well as
standalone requirements.&nbsp; Other products sold by OMS include motors,
drivers, cables, software and a variety of accessories to meet most embedded
motion control requirements.</p>



<p style='text-align:justify;text-indent:.5in'>During the past
five years, OMS has benefited and suffered from the rapidly changing
environment of the semiconductor industry.&nbsp; It is characterized by dramatic
changes in demand for products.&nbsp; While recording two of its best operational
performances in fiscal years 1999 and 2000 with revenues in each year exceeding
$7 million, OMS was impacted severely by the downturn in the semiconductor
industry beginning in November of 2000.&nbsp; Comparatively, in the most recent
fiscal years of 2002 and 2003, revenues for OMS have been $2.2 and $2.7
million, respectively.&nbsp; In 2003, OMS began to improve revenues both in the
semiconductor and non-semiconductor businesses as those markets have begun to
regain strength. </p>



<p style='text-align:justify;text-indent:.5in'>In response to
the rapidly changing market conditions, OMS also significantly reduced its
number of employees, made deep cuts in operational expenses and focused on
maximizing the sales of existing product to existing customers.&nbsp; At the same
time, OMS accelerated the development of a new generation of motion control
technology, based on the PowerPC processor.&nbsp; This new servo/stepper controller
became available in fiscal year 2003 and will be expanded to create a full line
of new products.&nbsp; OMS continues to develop new customer relationships and
sales with companies outside the semiconductor industry.</p>



<p style='text-align:justify;text-indent:.5in'>OMS' revenue is
derived from predominately four market segments, including semiconductor
equipment, medical diagnostic equipment and instrumentation, distribution and
government.&nbsp; The semiconductor equipment markets have accounted for up to 60%
of OMS' sales in recent years, however due to the technology down cycle, OMS
has implemented sales strategies to penetrate other markets.&nbsp; The increase in
the percentage of semiconductor market sales in 2003 is due to resurgence in
demand in the semiconductor industry.&nbsp; The proportion of total sales to each
market segment is noted in the table below:</p>



<p style='text-align:center;'>13</p>



<b><hr color="#000080">
<p><br clear=all
style='page-break-before:always'>
</b>

</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:-14.75pt;border-collapse:collapse'>
 <tr>
  <td width=224 valign=bottom style='width:168.1pt;border:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b><u>OMS Market Segment</u></b></p>
  </td>
  <td width=68 valign=bottom style='width:50.75pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>Q1<br>
  FY
  2004</u></b></p>
  </td>
  <td width=72 valign=bottom style='width:.75in;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>Q1<br>
  FY
  2003</u></b></p>
  </td>
  <td width=24 valign=bottom style='width:.25in;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  &nbsp;</td>
  <td width=66 valign=bottom style='width:49.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>FY
  2003</u></b></p>
  </td>
  <td width=84 valign=bottom style='width:63.0pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>FY
  2002</u></b></p>
  </td>
 </tr>
 <tr>
  <td width=224 valign=top style='width:168.1pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Semiconductor </p>
  </td>
  <td width=68 valign=top style='width:50.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>46%
  </p>
  </td>
  <td width=72 valign=top style='width:.75in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>33%
  </p>
  </td>
  <td width=24 valign=top style='width:.25in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=66 valign=top style='width:49.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>38%
  </p>
  </td>
  <td width=84 valign=top style='width:63.0pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>29%
  </p>
  </td>
 </tr>
 <tr>
  <td width=224 valign=top style='width:168.1pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Medical</p>
  </td>
  <td width=68 valign=top style='width:50.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>19%</p>
  </td>
  <td width=72 valign=top style='width:.75in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>27%
  </p>
  </td>
  <td width=24 valign=top style='width:.25in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=66 valign=top style='width:49.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>21%</p>
  </td>
  <td width=84 valign=top style='width:63.0pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>30%
  </p>
  </td>
 </tr>
 <tr>
  <td width=224 valign=top style='width:168.1pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Distribution</p>
  </td>
  <td width=68 valign=top style='width:50.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>22%
  </p>
  </td>
  <td width=72 valign=top style='width:.75in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>23%
  </p>
  </td>
  <td width=24 valign=top style='width:.25in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=66 valign=top style='width:49.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>17%
  </p>
  </td>
  <td width=84 valign=top style='width:63.0pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>24%
  </p>
  </td>
 </tr>
 <tr>
  <td width=224 valign=top style='width:168.1pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Government</p>
  </td>
  <td width=68 valign=top style='width:50.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>1%</p>
  </td>
  <td width=72 valign=top style='width:.75in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>3%</p>
  </td>
  <td width=24 valign=top style='width:.25in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=66 valign=top style='width:49.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>15%
  </p>
  </td>
  <td width=84 valign=top style='width:63.0pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>6%
  </p>
  </td>
 </tr>
 <tr>
  <td width=224 valign=top style='width:168.1pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Other</p>
  </td>
  <td width=68 valign=top style='width:50.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>12%</p>
  </td>
  <td width=72 valign=top style='width:.75in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>14%</p>
  </td>
  <td width=24 valign=top style='width:.25in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=66 valign=top style='width:49.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>9%</p>
  </td>
  <td width=84 valign=top style='width:63.0pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>11%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in'>OMS distributes
its product directly to original equipment manufacturers (OEM's) and through a
network of high technology distributors within the United States.&nbsp;
Internationally, OMS has agreements with foreign distributors of electronic and
motion control products.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>At the present time, OMS is generally able to fill orders within
forty-five (45) days.&nbsp; At September 30, 2003, OMS had an order backlog,
including orders for delivery beyond 45 days,&nbsp; of $892,000 compared with an
order backlog of $534,000 at September 30, 2002.&nbsp; OMS does not typically
experience seasonal fluctuations in its orders, although there are significant
fluctuations in the market demand of products in the industries it serves. </p>



<p><b>CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS</b></p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company's consolidated financial
statements are prepared in accordance with accounting principles generally
accepted in the United States (GAAP).&nbsp; The preparation of the Company's
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosures.&nbsp; The Company bases its estimates on historical experience
and various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources.&nbsp; Actual results may differ from these estimates under
different assumptions or conditions.&nbsp; The significant accounting policies
that are believed to be the most critical to aid in fully understanding and
evaluating the reported financial results include inventory valuations for slow
moving items, impairment of goodwill, and potentially the most significant, the
recovery of deferred income tax assets.</p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As part of the
process of preparing the Company's consolidated financial statements the
Company is required to estimate its income taxes in each of the jurisdictions
in which it operates.&nbsp; This process involves the Company estimating the actual
current tax liabilities together with assessing temporary differences resulting
from differing treatment of items for tax and accounting purposes.&nbsp; These
differences result in deferred tax assets and liabilities, which are included
within the consolidated balance sheet.&nbsp; The most significant tax assets are
future deductions from the amortization on intangibles over the next ten
years.&nbsp; Tax assets also result from net operating losses and research and
development tax credits.&nbsp; The Company must then assess the likelihood that the
deferred tax assets will be recovered from future taxable income and to the
extent the Company believes that recovery is not likely, a valuation allowance
must be established.&nbsp; To the extent the Company establishes a valuation
allowance or increases this allowance in a period, the impact will be included
in the tax provision in the statement of operations.</p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Significant management
judgment is required in determining the Company's provision for income taxes
and the recoverability of the deferred tax asset.&nbsp; It is based on estimates of
future taxable income by jurisdiction in which the Company operates and the
period over which the deferred tax assets will be recoverable.&nbsp; In the
event that actual results differ from these estimates or the Company adjusts
these estimates in future periods a valuation allowance may need to be
established which could result in a tax provision equal to the carrying value of
the deferred tax assets. </p>

<p style='text-autospace:none'><b>&nbsp;</b></p>

<p style='text-autospace:none'>&nbsp;</p>

<p style='text-autospace:none' align="center">14</p>

<b><hr color="#000080">
<p><br clear=all
style='page-break-before:always'>
</b>

</p>

<p style='text-autospace:none'><b>RESULTS OF OPERATIONS</b></p>

<p style='text-autospace:none'><b>&nbsp;</b></p>

<p><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b>The following table sets forth for the
periods indicated, the percentage of net revenues represented by each item in
the Company's Consolidated Statements of Income (unaudited). </p>



<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='margin-left:9.9pt;border-collapse:collapse;border:none'>
 <tr style='page-break-inside:avoid'>
  <td width=402 rowspan=2 valign=top style='width:301.5pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=216 colspan=2 valign=top style='width:2.25in;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>Three Months Ended<br>
  September 30,</p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid'>
  <td width=114 valign=top style='width:85.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>2002</p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Net Revenues:
  </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-.05in'>&nbsp;100.0%</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-6.3pt'>&nbsp;100.0%&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">

  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">

  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Cost of Goods Sold&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-.05in'>&nbsp;56.3&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-6.3pt'>&nbsp;57.7&nbsp;&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Gross Profit</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-.05in'>43.7&nbsp; </p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-6.3pt'>42.3&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">

  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">

  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Selling, General and
  Administrative Expenses&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-.05in'>23.2&nbsp; </p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-6.3pt'>27.0&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Research and Development Costs</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-.05in'>11.0&nbsp; </p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-6.3pt'>14.2&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Amortization</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-.05in'>--</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-6.3pt'>1.1</p>
  </td>
 </tr>
 <tr style='height:7.15pt'>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:7.15pt'>
  <p>Income (loss) from Operations&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:7.15pt' align="center">
  <p style='margin-right:-.05in'>9.5</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:7.15pt' align="center">
  <p style='margin-right:-6.3pt'>(0.0)</p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">

  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">

  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Net interest and other (loss)</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-.05in'>(0.4)</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-6.3pt'>(0.3) </p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">

  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">

  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>(Provision) credit for Income Taxes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-.05in'>(3.7)</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-6.3pt'>0.1</p>
  </td>
 </tr>
 <tr>
  <td width=402 valign=top style='width:301.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Net Income (loss)</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:.9pt'>&nbsp;&nbsp;&nbsp;&nbsp;5.4%</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="center">
  <p style='margin-right:-6.3pt'>&nbsp;&nbsp;&nbsp;(0.2%)</p>
  </td>
 </tr>
</table>

<p style='text-autospace:none'><b>&nbsp;</b></p>

<p style='text-autospace:none'><b>&nbsp;For the Three-Month periods
Ended  September 30, 2003 and 2002 </b></p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Net Income (loss).</b>&nbsp; The Company's net income for the three months
ended September 30, 2003 was $193,000 or $0.02 per share on a basic and $0.02
per share on a diluted basis, as compared to a net (loss) of ($6,000) or ($0.00)
per share on a basic and ($0.00) per share on a diluted basis, for the three
months ended September 30, 2002.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>Net Sales.</b>&nbsp; Consolidated sales increased $811,000 or 30% for the quarter
ended September 30, 2003, compared to the quarter ended September 30, 2002, due to increased sales at both Micro Motors and OMS.&nbsp; At Micro Motors, a 35%
overall gain as compared to the same quarter last year was due to especially
large increases to shipments of its medical products, which increased by over 149%.&nbsp;
Shipments to dental customers increased 14% as a significant Healozone shipment
was made and as gains from the implementation of an independent sales force in
January 2003 continued.&nbsp; Development fees were reduced by 61% as development
projects transitioned to production contracts.&nbsp; OMS benefited from a continued
resurgence in semiconductor fabrication equipment related orders as its sales
grew 13%.&nbsp; Sales to customers outside the semiconductor industry remained
flat.&nbsp; Although selective price increases and decreases were implemented
throughout the quarter at both OMS and Micro Motors, the majority of the sales
growth is due to higher volumes. </p>











<p style='text-align:justify;text-autospace:none'>&nbsp;</p>











<p style='text-align:center;text-autospace:none'>15</p>











<b><hr color="#000080">
<p><br clear=all
style='page-break-before:always'>
</b>

</p>











<p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;
Net sales by subsidiary and type of customer were as follows
(unaudited): </p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=528
 style='width:396.25pt;border-collapse:collapse'>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=12 valign=top style='width:9.0pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=246 colspan=3 valign=top style='width:184.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  Months Ended September 30,<br>
  2003&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2002</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Increase/<br>
  (Decrease)</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Dental</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>$</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,159,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>$</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,018,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>14%</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Medical</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,249,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>502,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>149%&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Industrial</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>134,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>148,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>(9%)</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Development Fees</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>118,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>289,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>(59%)</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Repair &amp; Other</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>147,000</u></p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>120,000</u></p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp; 23%</u></p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>2,807,000 </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>2,077,000 </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>35%</p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-top:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-top:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=96 valign=top style='width:1.0in;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><u>Oregon Micro Systems

  </u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>721,000 </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>640,000
  </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>13%&nbsp;
  </p>
  </td>
 </tr>
 <tr>
  <td width=174 valign=top style='width:130.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Total</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>3,528,000 </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>2,717,000
  </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>30%&nbsp;
  </p>
  </td>
 </tr>
</table>





<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>Gross Profits</b>.&nbsp; The Company's consolidated gross profit for the quarter
ended September 30, 2003 increased $391,000 or 34% over the same quarter in the
previous year due to the increased sales and margin improvements at both
operating subsidiaries. Gross profit as a percentage of sales increased to 44%
for the quarter ended September 30, 2003 compared to 42% for the quarter ended September 30, 2002 as the continued gains from the increased sales, the ongoing
Company-wide cost reduction efforts and a richer product mix favoring medical
shipments were realized.&nbsp; Gross Profit at Micro Motors increased from 33% of
sales in 2002 to 36% of sales in 2003 due to the richer product mix favoring
medical products.&nbsp; Gross Profit at OMS increased slightly from 71% of sales
in 2002 to 73% of sales in 2003 due to higher sales volume and a flat cost base. </p>



<p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Gross profits by subsidiary were as follows (unaudited): </p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:-.75pt;border-collapse:collapse'>
 <tr>
  <td width=168 valign=top style='width:1.75in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-top:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=288 colspan=3 valign=top style='width:3.0in;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  Months Ended September 30,</p>
  </td>
  <td width=97 valign=top style='width:72.75pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td width=168 valign=top style='width:1.75in;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>2002</p>
  </td>
  <td width=97 valign=top style='width:72.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td width=168 valign=top style='width:1.75in;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>1,014,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>694,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=97 valign=top style='width:72.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>46%&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=168 valign=top style='width:1.75in;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><u>Oregon Micro Systems

  </u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>527,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>456,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=97 valign=top style='width:72.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>16%</p>
  </td>
 </tr>
 <tr>
  <td width=168 valign=top style='width:1.75in;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='line-height:normal;text-autospace:none'>Total</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>1,541,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>1,150,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=97 valign=top style='width:72.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>34%&nbsp;
  </p>
  </td>
 </tr>
</table>





<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Selling,
General and Administrative Costs (S, G&amp;A).&nbsp; </b>&nbsp;S, G &amp; A expenses
increased 7% to $819,000 for the quarter ended September 30, 2003 from $767,000 for the quarter ended September 30, 2002.&nbsp; The increase is mainly due to
increased selling expense at Micro Motors offset by reduced amortization and
cost saving measures implemented at the corporate and subsidiary level.&nbsp; The
main cost decreases associated with general corporate costs were in reduced
management expenses, which decreased $87,000, offset by accelerated audit
fees.&nbsp; At OMS the largest decrease was in reduced amortization of $32,000
in 2003. </p>



<p style='text-align:justify;text-autospace:none'>S, G &amp; A
expenses by subsidiary were as follows:&nbsp;&nbsp; </p>



<div align=left>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:39.05pt;border-collapse:collapse' width="500">
 <tr>
  <td width=175 valign=top style='width:131.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-top:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=246 colspan=3 valign=top style='width:184.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  Months Ended September 30,</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td width=175 valign=top style='width:131.35pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>2002</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td width=175 valign=top style='width:131.35pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>440,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>358,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>23%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=175 valign=top style='width:131.35pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Oregon Micro Systems </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>177,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>184,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>(4%)&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=175 valign=top style='width:131.35pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><u>Corporate </u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>202,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>225,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>(10%)&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=175 valign=top style='width:131.35pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Total</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>819,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>767,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>7%&nbsp;</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>



<p style='text-align:center;text-autospace:none'>16</p>



<b><hr color="#000080">
<p><br clear=all
style='page-break-before:always'>
</b>

</p>



<p style='text-align:justify;text-autospace:none'>&nbsp;</p>



<p style='text-align:justify;text-autospace:none; text-indent:0.5in'>&nbsp;<b>Research
and Development Costs</b>.&nbsp; Research and development expenses increased
slightly to $387,000 for the quarter ended September 30, 2003 from $385,000 for the quarter ended September 30, 2002, an increase of 1%. The increase is
due to increased Company funded research and development at Micro Motors in support
of the fast growing medical product line.&nbsp; This increase is offset by the
decrease at OMS which is due to cost cutting concurrent with the completion of
the MAX system product line development.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The Company engages in two types of research and development efforts.&nbsp;
The first is funded by the Company itself, intended to develop generic rotary
drive technologies and products that will subsequently be modified to meet the
needs of individual customers.&nbsp; In this initial phase, there are generally
no revenues generated and the associated costs are expensed as incurred. </p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
second type of research and development efforts are those performed for and
funded by specific customers under the terms of a formal development
agreement.&nbsp; These efforts are generally for specific modifications to the
generic products developed by the Company-funded research.&nbsp; These projects
typically take place within 12 months of the generic development work being
completed.&nbsp; The Company recognizes revenue under these research and development
agreements as certain deliverables are met as specified in each development
contract.&nbsp; The research and development costs associated with these efforts
are capitalized and recognized as costs of goods sold (COGS) when the contracted
deliverable is made.</p>



<p style='text-align:justify'>Company-funded research and
development costs by subsidiary were as follows:</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:30.6pt;border-collapse:collapse'>
 <tr>
  <td width=177 valign=top style='width:133.05pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-top:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=246 colspan=3 valign=top style='width:184.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  Months Ended September 30,</p>
  </td>
  <td width=99 valign=top style='width:74.55pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td width=177 valign=top style='width:133.05pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>2002</p>
  </td>
  <td width=99 valign=top style='width:74.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td width=177 valign=top style='width:133.05pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>235,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>184,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=99 valign=top style='width:74.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>28%&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=177 valign=top style='width:133.05pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><u>Oregon Micro Systems

  </u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>152,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>201,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=99 valign=top style='width:74.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>(24%)&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=177 valign=top style='width:133.05pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Total</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>387,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>385,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=99 valign=top style='width:74.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>1%&nbsp;</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>Operating Profits</b>.&nbsp; The Company's consolidated operating profit for the
quarter ended September 30, 2003 increased $337,000 over the same quarter in
the previous year's operating (loss) of $2,000 due to the increased sales and
margin improvements and controlled expenses at both operating subsidiaries.
Operating profit as a percentage of sales increased to 9.5% for the quarter
ended September 30, 2003 compared to (0.0%) for the quarter ended September 3 0, 2002.&nbsp; Operating Profit at Micro Motors increased from 7.3% of sales in
2002 to 12.0% of sales in 2003 due to the richer product mix favoring medical
products.&nbsp; Operating Profit at OMS more than doubled from 11.0% of sales in
2002 to 27.6% of sales in 2003 due to higher sales volume, no amortization and a
flat cost base. </p>

<p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Operating profits by subsidiary were as follows (unaudited): </p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:-1.15pt;border-collapse:collapse'>
 <tr>
  <td width=168 valign=top style='width:1.75in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-top:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=288 colspan=3 valign=top style='width:3.0in;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  Months Ended September 30,</p>
  </td>
  <td width=97 valign=top style='width:72.75pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td width=168 valign=top style='width:1.75in;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>2002</p>
  </td>
  <td width=97 valign=top style='width:72.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td width=168 valign=top style='width:1.75in;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>338,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>152,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=97 valign=top style='width:72.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>122%&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=168 valign=top style='width:1.75in;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><u>Oregon Micro Systems

  </u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>199,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>71,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=97 valign=top style='width:72.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>180%</p>
  </td>
 </tr>
 <tr>
  <td width=168 valign=top style='width:1.75in;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><u>Corporate </u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>(202,000)&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>(225,000)&nbsp;&nbsp;
  </p>
  </td>
  <td width=97 valign=top style='width:72.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>(10%)</p>
  </td>
 </tr>
 <tr>
  <td width=168 valign=top style='width:1.75in;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='line-height:normal;text-autospace:none'>Total</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>335,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>(2,000)&nbsp;&nbsp;
  </p>
  </td>
  <td width=97 valign=top style='width:72.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>Neg
  to pos&nbsp; </p>
  </td>
 </tr>
</table>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Net
interest expense.&nbsp; </b>Net interest expense was $19,000 in the first
quarter of fiscal 2003 due to the full quarter use and availability of the
credit line. </p>



<p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Provision
for Taxes</b>. The Company's effective tax rate on income (loss) from operations
is 40% for the quarters ended September 30, 2003, and 2002.



<p style='text-autospace:none'>&nbsp;<p style='text-autospace:none' align="center">
17<b><hr color="#000080"><br clear=all style='page-break-before:always'>
&nbsp;<p>Liquidity and Capital Resources </b></p>

<p style='text-autospace:none'><b>&nbsp;</b>The following
table presents selected financial statistics and information for the
comparative quarter last year and the last quarter (unaudited):</p>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=624
 style='width:7.25in;margin-left:27.9pt;border-collapse:collapse;border:medium none; '>
 <tr style='page-break-inside:avoid'>
  <td width=294 valign=top style='width:220.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><i>&nbsp;</i></p>
  </td>
  <td width=216 colspan=2 valign=top style='width:2.25in;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>Quarter Ended September 30,</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>Year Ending</p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid'>
  <td width=294 valign=top style='width:220.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>2002</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>June 30, 2003</p>
  </td>
 </tr>
 <tr>
  <td width=294 valign=top style='width:220.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Cash and
  cash equivalents </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=right style='text-align:right'>$609,000&nbsp;</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=right style='text-align:right'>$179,000&nbsp;</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=right style='text-align:right'>$795,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=294 valign=top style='width:220.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Net cash provided by (used
  in) operations </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=right style='text-align:right'>($393,000)</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=right style='text-align:right'>($192,000)</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=right style='text-align:right'>$503,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=294 valign=top style='width:220.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Working Capital</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=right style='text-align:right'>$4,816,000&nbsp;</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=right style='text-align:right'>$4,052,000&nbsp;</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=right style='text-align:right'>$4,584,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=294 valign=top style='width:220.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Credit Line outstanding
  balance </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=right style='text-align:right'>$716,000&nbsp;</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=right style='text-align:right'>$176,000&nbsp;</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=right style='text-align:right'>$432,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=294 valign=top style='width:220.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Tangible book value/common
  share (undiluted)</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $0.75</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $0.71</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $0.72</p>
  </td>
 </tr>
 <tr>
  <td width=294 valign=top style='width:220.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Number of days of sales
  outstanding in accounts receivable at end of quarter </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 58</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  <p align=center style='text-align:center'>58</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  <p align=center style='text-align:center'>50</p>
  </td>
 </tr>
</table>

<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The Company's working capital at September 30, 2003 increased to $4.8
million from $4.6 million at June 30, 2003 and $4.1 million at September 30, 2002, an increase of $0.7 million from the same period last year.&nbsp; Cash Flow
(used in) Operations was ($393,000) in the quarter ended September 30, 2003 compared to ($192,000) for the quarter ended September 30, 2002. Growth in accounts receivable and inventory consistent with higher sales level and a more
normal DSO contributed to the use of cash and increased working capital for the
quarter.&nbsp; Management believes that the Company's working capital needs over
the next twelve months can be adequately supported by current operations. </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The subsidiaries of the Company entered into a credit facility with Wells
Fargo Business Credit Inc. (WFBCI) in May 2002 for borrowings up to the lesser
of $3,000,000 or the total of the eligible accounts receivable.&nbsp; The terms of
the credit facility expire May 2005 and require monthly interest payments at
the prime rate (4.00% at September 30, 2003) plus 1.00% to 1.75% based on
outstanding borrowings, with a minimum interest charge of $12,500 per quarter.&nbsp;
The outstanding borrowings are secured by all assets of the Company's two
subsidiaries, Micro Motors and OMS, and are guaranteed by the Company.&nbsp; The
outstanding balance under the terms of this credit facility as of September 30, 2003 was $716,000.&nbsp;
The total additional eligible borrowing capacity based on the receivables
balances at September 30, 2003 was $943,000.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>There are certain financial and non-financial covenants that the Company
must meet to be in compliance with the terms of the credit facility.&nbsp; There was
one amendment to the loan agreement made subsequent to June 30, 2003 where a technical correction was made to the definition of &quot;Net Income&quot; as it applied
to the covenant calculations.&nbsp; At September 30, 2003 the Company was in
compliance with all covenants.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>On October 29, 2003, the credit facility with WFBCI was ended and
refinanced by Wells Fargo Bank, N.A. (Wells Fargo) for borrowings up to the
lesser of $2,000,000 or the total of the eligible accounts receivable.&nbsp; The
terms of the credit facility expire October 2004 and require monthly interest
payments at the prime rate (4.00% at September 30, 2003) or LIBOR plus 2.75%
based on outstanding borrowings, with a no minimum interest charge.&nbsp; The
outstanding borrowings are secured by all assets of the Company's two
subsidiaries, Micro Motors and OMS, and are guaranteed by the Company.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>There are certain financial and non-financial covenants that the Company
must meet to be in compliance with the terms of the new credit facility.&nbsp; At October 31,  2003 the Company was in compliance with all covenants.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>In September
2002, the Company's Board of Directors authorized the repurchase on the open
market of up to 500,000 shares of the Company's outstanding Common Stock,
subject to compliance with applicable laws and regulations.&nbsp; There is no
requirement that the Company repurchase all or any portion of such shares.&nbsp; The
maximum total value of the repurchase is not to exceed $500,000.&nbsp; the maximum
price per share that can be paid is $1.25.&nbsp; The repurchase is to be financed
both with cash generated by operations and through the utilization of the
Company's credit facility.&nbsp; From the inception of the repurchase authorization
through the year-end date of June 30, 2003, the Company repurchased 75,700
shares of Common Stock for $43,741, at an average price of $0.58 per share.&nbsp;
No additional shares were repurchased in the quarter ending September 30, 2003.</p>



<p style='text-align:justify;text-indent:.5in'>&nbsp;</p>



<p style='text-align:justify;text-indent:.5in'>&nbsp;</p>



<p style='text-align:center;'>18</p>

<b><hr color="#000080">
<p><br clear=all
style='page-break-before:always'>
</b>

</p>

<p style='margin-top:6.0pt;text-align:justify;text-indent:.5in'>At
 September 30, 2003, the Company had cash and cash equivalents of $609,000.&nbsp;
The Company believes that its cash and cash equivalents on hand at September 30,
2003, together with cash flows from operations, if any, and amounts available
under the credit facility will be sufficient to meet its working capital and
capital expenditure requirements for fiscal 2004. </p>



<p style='text-autospace:none'><b>Item 3. Controls and
Procedures</b></p>

<p style='text-align:justify;text-indent:.5in'>Our Chief Executive Officer and
Chief Financial Officer (our principal executive officer and principal financial
officer, respectively) have concluded, based on their evaluation as of September
30, 2003 (&quot;Evaluation Date&quot;), that the design and operation of our &quot;disclosure
controls and procedures&quot; (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (&quot;Exchange Act&quot;)) are effective to
ensure that information required to be disclosed by the Company in the reports
filed or submitted by us under the Exchange Act is accumulated, recorded,
processed, summarized and reported to our management, including our principal
executive officer and our principal financial officer, as appropriate to allow
timely decisions regarding whether or not disclosure is required.</p>



<p style='text-indent:.5in;text-autospace:none'>During the quarter ended
September 30, 2003, there were no changes in the Company's internal controls
over financial reporting&quot; (as defined in Rule 13a-15(f) under the Exchange Act)
that have materially affected, or are reasonably likely to materially affect,
the Company's internal controls over financial reporting.</p>

<p style='text-align:justify;text-autospace:none'><b>&nbsp;</b></p>





<p style='text-align:justify;text-autospace:none'>&nbsp;</p>





<p style='text-align:center;text-autospace:none'>19</p>





<hr color="#000080"><br clear=all
style='page-break-before:always'>


<p align=center style='text-align:center;text-autospace:none'><b>PART
II </b></p>

<p align=center style='text-align:center;text-autospace:none'><b>OTHER
INFORMATION </b></p>



<p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Item 1 - Legal
Proceedings </b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The Company is a party to various legal proceedings incidental to its
business, none of which are considered by the Company to be material at this
time.</p>

<p style='margin-top:.25in;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Item 2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Changes in Securities and Use of Proceeds. </b>&nbsp;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
None.</p>

<p style='margin-top:.25in;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Item 3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Defaults Upon Senior Securities. </b>&nbsp;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
None.</p>

<p style='margin-top:.25in;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Item 4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Submissions of Matters to a Vote of Securities Holders. </b>&nbsp;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
None.</p>

<p style='margin-top:.25in;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Item 5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Other Information. </b>&nbsp;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
None.</p>

<p style='margin-top:.25in;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Item 6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Exhibits and Reports on Form 8-K. </b>&nbsp;<br>
&nbsp;</p>

<p style='margin-left:.5in;text-indent:.5in'><u>Exhibits</u>:</p>



<p style='margin-left:2.0in;text-indent:-.5in'>31.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certifications Required by Rule 13a-14(a) of
the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002</p>



<p style='margin-left:2.0in;text-indent:-.5in'>31.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certifications of Chief Executive Officer
and Chief Financial Officer Pursuant 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002</p>



<p style='text-autospace:none'>SIGNATURES </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized. </p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='border-collapse:collapse' width="306">
 <tr>
  <td valign=top style='width:306;padding:0in'>
  <p style='text-autospace:none'>PRO-DEX INC. </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:306;padding:0in'>
  <div style="width: 306; height: 19; border-bottom-style: solid; border-bottom-width: 1">
  <p style='text-autospace:none'>By: / s / Patrick Johnson </p>
  </div>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:306;padding:0in'>
  <p style='text-autospace:none'>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:306;padding:0in'>
  <p style='text-autospace:none'>Patrick Johnson </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:306;padding:0in'>
  <p style='text-autospace:none'>Chief Executive Officer</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:306;padding:0in'>
  <p style='text-autospace:none'>and President (Principal
  Executive Officer)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:306;padding:0in'>
  &nbsp;</td>
 </tr>
</table>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='border-collapse:collapse' width="307">
 <tr>
  <td valign=top style='width:307;padding:0in'>
  <p style='text-autospace:none'>PRO-DEX INC. </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:307;padding:0in'>
  <div style="width: 307; height: 18; border-bottom-style: solid; border-bottom-width: 1">
  <p style='text-autospace:none'>By: / s / Jeffrey J. Ritchey </p>
  </div>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:307;padding:0in'>
  <p style='text-autospace:none'>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:307;padding:0in'>
  <p style='text-autospace:none'>Jeffrey J. Ritchey </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:307;padding:0in'>
  <p style='text-autospace:none'>Secretary, Treasurer, </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:307;padding:0in'>
  <p style='text-autospace:none'>and Chief Financial Officer
  (Principal <br>
  Financial and Accounting Officer)</p>
  </td>
 </tr>
</table>







</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>3
<FILENAME>ex31-1.htm
<TEXT>
<html>

<head>
<title>EXHIBIT 31.1</title>
</head>

<body>







<p>&nbsp;</p>







<p><b><font size="2">EXHIBIT 31.1</font></b></p>



<p><font size="2">I, Patrick L. Johnson,
certify that:</font></p>



<p style='margin-left:.5in;text-align:justify;text-indent:-.5in'><font size="2">1.&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I have reviewed this Form 10-QSB of
Pro-Dex, Inc.;</font></p>



<p style='margin-left:.5in;text-align:justify;text-indent:-.5in'><font size="2">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; </font> </p>



<p style='margin-left:.5in;text-align:justify;text-indent:-.5in'><font size="2">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Based on my knowledge, the financial
statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this
report; </font> </p>



<p style='margin-left:.5in;text-align:justify;text-indent:-.5in'><font size="2">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and
15d-15(e)) [language omitted pursuant to SEC Release 34-47986]&nbsp; for the
registrant and have:</font></p>



<p style='margin-left:1.0in;text-align:justify;text-indent:
- -.5in'><font size="2">a)&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision,&nbsp; to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in
which this report is being prepared;</font></p>



<p style='margin-left:1.0in;text-align:justify;text-indent:
- -.5in'><font size="2">b)&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; [Omitted pursuant to SEC
Release 34-47986];</font></p>



<p style='margin-left:.75in;text-align:justify;text-indent:
- -.25in'><font size="2">c)&nbsp;&nbsp;&nbsp; Evaluated the effectiveness of the
registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such
evaluation; and </font> </p>



<p style='margin-left:.75in;text-align:justify;text-indent:
- -.25in'><font size="2">d)&nbsp;&nbsp;&nbsp; Disclosed in this report any
change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting;&nbsp; and</font></p>



<p style='margin-left:.5in;text-align:justify;text-indent:-.5in'><font size="2">5.&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent functions):</font></p>



<p style='margin-left:1.0in;text-align:justify;text-indent:
- -.5in'><font size="2">a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; All significant
deficiencies and material weaknesses in the design or operation of internal
controls over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial
information; and</font></p>



<p style='margin-left:1.0in;text-align:justify;text-indent:
- -.5in'><font size="2">b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial
reporting.</font></p>



<p><font size="2">Date: November 10, 2003&nbsp;&nbsp;&nbsp;</font></p>

<div align="left">
  <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="700" id="AutoNumber1">
    <tr>
      <td width="363">&nbsp;</td>
      <td width="395"><font size="2"><u>/s/&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      PATRICK L. JOHNSON&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      </u><br>
      Patrick
L. Johnson<br>
      Chief
Executive Officer</font></td>
    </tr>
  </table>
</div>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>

<hr color="#000080">

</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>4
<FILENAME>ex31-2.htm
<TEXT>
<html>

<head>
<title>eX31.2</title>
</head>

<body>


<p><b><font size="2">Exhibit 31.2&nbsp;</font></b></p>



<p><font size="2">I, Jeffrey J. Ritchey,
certify that: </font> </p>



<p style='margin-left:.5in;text-align:justify;text-indent:-.5in'><font size="2">1.&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I have reviewed this Form 10-QSB of
Pro-Dex, Inc.;</font></p>



<p style='margin-left:.5in;text-align:justify;text-indent:-.5in'><font size="2">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; </font> </p>



<p style='margin-left:.5in;text-align:justify;text-indent:-.5in'><font size="2">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Based on my knowledge, the financial
statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this
report; </font> </p>



<p style='margin-left:.5in;text-align:justify;text-indent:-.5in'><font size="2">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and
15d-15(e)) [language omitted pursuant to SEC Release 34-47986]&nbsp; for the
registrant and have:</font></p>



<p style='margin-left:1.0in;text-align:justify;text-indent:
- -.5in'><font size="2">a)&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision,&nbsp; to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in
which this report is being prepared;</font></p>



<p style='margin-left:1.0in;text-align:justify;text-indent:
- -.5in'><font size="2">b)&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; [Omitted pursuant to SEC
Release 34-47986];</font></p>



<p style='margin-left:.75in;text-align:justify;text-indent:
- -.25in'><font size="2">c)&nbsp;&nbsp;&nbsp; Evaluated the effectiveness of the
registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such
evaluation; and </font> </p>



<p style='margin-left:.75in;text-align:justify;text-indent:
- -.25in'><font size="2">d)&nbsp;&nbsp;&nbsp; Disclosed in this report any
change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting;&nbsp; and</font></p>



<p style='margin-left:.5in;text-align:justify;text-indent:-.5in'><font size="2">5.&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent functions):</font></p>



<p style='margin-left:1.0in;text-align:justify;text-indent:
- -.5in'><font size="2">a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; All significant
deficiencies and material weaknesses in the design or operation of internal
controls over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial
information; and</font></p>



<p style='margin-left:1.0in;text-align:justify;text-indent:
- -.5in'><font size="2">b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial
reporting.</font></p>



<p><font size="2">Date: November 10, 2003&nbsp;&nbsp;&nbsp;</font></p>

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  <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="700" id="AutoNumber1">
    <tr>
      <td width="411">&nbsp;</td>
      <td width="347"><font size="2"> <u>/s/
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; JEFFREY J. RITCHEY</u> _______</font></td>
    </tr>
    <tr>
      <td width="411">&nbsp;</td>
      <td width="347"><font size="2">Jeffrey J. Ritchey<br>
      Chief Financial Officer</font></td>
    </tr>
    <tr>
      <td width="411">&nbsp;</td>
      <td width="347">&nbsp;</td>
    </tr>
  </table>
</div>
<p>&nbsp;</p>
<p>&nbsp;</p>



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<TYPE>EX-32
<SEQUENCE>5
<FILENAME>ex32.htm
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<title>EXHIBIT 32</title>
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<p>&nbsp;</p>


<p><b><font size="2">EXHIBIT 32</font></b></p>



<p align=center style='margin-top:0in;text-align:center'><b><font size="2">CERTIFICATIONS
OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER<br>
PURSUANT
TO 18 U.S.C. SECTION 1350, <br>
AS ADOPTED PURSUANT TO <br>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</font></b></p>

<p align=center style='margin-top:0in;text-align:center'><b><font size="2">&nbsp;</font></b></p>

<p align=center style='margin-top:0in;text-align:center'><b><font size="2">&nbsp;</font></b></p>

<p align=center style='margin-top:0in;text-align:center'><b><font size="2">Certifications
of Chief Executive Officer and Chief Financial Officer</font></b></p>

<p align=center style='margin-top:0in;text-align:center'><b><font size="2">&nbsp;</font></b></p>

<p style='margin-top:0in;text-align:justify; text-indent:0.5in'><font size="2">In connection with the
quarterly report on Form 10-QSB of Pro-Dex Inc. (the &quot;Company&quot;) for the
quarterly period ended September 30, 2003 (the &quot;Report&quot;), the undersigned
hereby certify in their capacities as Chief Executive Officer and Chief
Financial Officer of the Company, respectively, pursuant to 18 U.S.C.
Section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:</font></p>

<p style='text-align:justify; text-indent:0.5in'><font size="2">1.&nbsp;&nbsp; The Report fully complies with
the requirements of Section 13(a) or Section 15(d), of the Securities Exchange
Act of 1934, as amended; and</font></p>

<p style='text-align:justify; text-indent:0.5in'><font size="2">2.&nbsp;&nbsp; The information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.</font></p>



<div align="left">
  <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="725" id="AutoNumber1">
    <tr>
      <td valign="top"><font size="2">Dated: November 10, 2003 </font></td>
      <td valign="top"><font size="2">By:<u>
/s/ &nbsp;&nbsp; PATRICK L. JOHNSON&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      <br>
      </u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Patrick
L. Johnson<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chief
Executive Officer and President</font><u><font size="2"><br>
</u>&nbsp;<u><br>
</u>
      </font>
      </td>
    </tr>
    <tr>
      <td width="341">&nbsp;</td>
      <td width="417"><font size="2">&nbsp;</font></td>
    </tr>
    <tr>
      <td width="341"><font size="2">Dated: November 10, 2003</font></td>
      <td width="417"><font size="2">By:</font><u><font size="2">
/s/ &nbsp;&nbsp; JEFFREY J. RITCHEY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      </font> </u></td>
    </tr>
    <tr>
      <td width="341">&nbsp;</td>
      <td width="417"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Jeffrey
J. Ritchey<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Chief Financial Officer</font></td>
    </tr>
    <tr>
      <td width="341">&nbsp;</td>
      <td width="417"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><u><font size="2"><br>
<br>
      </font>
</u></td>
    </tr>
  </table>
</div>

<p><font size="2">A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signatures
that appear in typed form within the electronic version of this written
statement required by Section 906, has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.</font></p>





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