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<SEC-DOCUMENT>0001003297-04-000251.txt : 20040511
<SEC-HEADER>0001003297-04-000251.hdr.sgml : 20040511
<ACCEPTANCE-DATETIME>20040511155957
ACCESSION NUMBER:		0001003297-04-000251
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20040331
FILED AS OF DATE:		20040511

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:		04796475

	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>pdex10qfinal.htm
<TEXT>
<html>

<head>


<title>Prepared by E-Services - www.edgar2.net</title>



</head>

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

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



<div align="left">



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='border-collapse:collapse;border-collapse:collapse' width="750" bordercolor="#111111">
 <tr>
  <td valign=top style='width:728;padding:0in; 0in'>
  <p align="center"><b>UNITED STATES <br>
  SECURITIES AND EXCHANGE COMMISSION</b></p>
  <p align=center style='text-align:center'><b>Washington, D.C. 20549</b></p>

  <p align="center"><b><font size="4">&nbsp;&nbsp;</font><font size="5">FORM
  10-QSB</font>&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 align=center style='text-align:center;text-autospace:none'><b>For
  the quarterly period ended March 31, 2004</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 Act of 1934.<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &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>
  </td>
  <td valign=top style='width:4;padding:0in; 0in'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
</table>

</div>

<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;border-collapse:collapse !msorm'>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>Commission
  File Number&nbsp;&nbsp;&nbsp; 0-14942 </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <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 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <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 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>
  <font size="5">PRO-DEX, INC.&nbsp;&nbsp;&nbsp; </font> </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <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 0in 0in 0in 0in !msorm'>
  <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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <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 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <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 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>84-1261240
  </u></b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <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 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>(IRS
  Employer Identification No.) </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <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 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <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 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p style='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 0in 0in 0in 0in !msorm'>
  <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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <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 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>(Address
  of Principal Executive Offices)&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <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 0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; &nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p style='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 0in 0in 0in 0in !msorm'>
  <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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
</table>





<p style='text-autospace:none' align="justify">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' align="justify">Indicate
the number of shares outstanding of each of the Registrant's classes of Common
Stock outstanding as of the latest practicable date:&nbsp; 8,858,600 shares of
Common Stock, no par value, as of April 30, 2004. </p>



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



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



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



<p><b><font size="2" face="Arial">Item 1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Financial Statements</font></b></p>
<p align="center" style="text-align:center;text-autospace:none"><b>
<font size="2" face="Arial">PRO-DEX, INC. AND SUBSIDIARIES <br>
CONSOLIDATED BALANCE SHEETS </font></b></p>
<div align="left">
  <table class="MsoNormalTable" border="1" cellspacing="0" cellpadding="0" width="624" style="width:725;margin-left:0pt;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"><b><font size="2" face="Arial">&nbsp;</font></b></td>
      <td valign="top" style="border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">March 31,
      2004</font></i></td>
      <td valign="top" style="border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">June 30,
      2003</font></i></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 valign="top" style="border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">&nbsp;(unaudited)</font></i></td>
      <td valign="top" style="border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">&nbsp;(audited)</font></i></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"><b><font size="2" face="Arial">ASSETS</font></b></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"><font size="2" face="Arial">Current assets:</font></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" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;
      Cash and cash equivalents </font></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" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp; 1,306,000&nbsp;</font></td>
      <td width="119" valign="top" style="width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" align="right"><font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      795,000&nbsp;</font></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" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;
      Accounts receivable, net of allowance for doubtful </font></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" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      accounts of $40,000 and $30,000 </font></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" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,888,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,620,000&nbsp;</font></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" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;
      Inventories, net </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      2,601,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      2,835,000&nbsp;</font></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" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;
      Prepaid expenses </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      143,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      81,000&nbsp;</font></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" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;
      Deferred taxes</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;
      &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;750,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      770,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Total current assets </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      6,688,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      6,101,000&nbsp;</font></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">&nbsp;</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"><font size="2" face="Arial">Equipment and leasehold
      improvements, net&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,000,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,040,000&nbsp;</font></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">&nbsp;</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"><font size="2" face="Arial">Other assets:</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Goodwill</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,110,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,110,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Deferred
      taxes </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      833,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      833,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Other
      </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      11,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      20,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Total other assets </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,954,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,963,000&nbsp;</font></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">&nbsp;</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">&nbsp;</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"><font size="2" face="Arial">Total assets</font></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"><font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;
      9,642,000&nbsp;</font></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"><font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;
      9,104,000&nbsp;</font></td>
    </tr>
    <tr>
      <td width="380" valign="top" style="width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt"><b><font size="2" face="Arial">&nbsp; </font></b><p><b>
      <font size="2" face="Arial">LIABILITIES AND SHAREHOLDERS' EQUITY</font></b></td>
      <td width="125" valign="top" style="width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" align="right"></td>
      <td width="119" valign="top" style="width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" align="right"></td>
    </tr>
    <tr>
      <td width="380" valign="top" style="width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt"><font size="2" face="Arial">Current liabilities:</font></td>
      <td width="125" valign="top" style="width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" align="right"></td>
      <td width="119" valign="top" style="width:89.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" align="right"></td>
    </tr>
    <tr>
      <td width="380" valign="top" style="width:284.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt"><font size="2" face="Arial">&nbsp;&nbsp; Current portion of
      long term debt to shareholder </font></td>
      <td width="125" valign="top" style="width:93.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" align="right"><font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      69,000&nbsp;</font></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"><font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      65,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp; Credit line payable
      </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      ---&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      432,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp; Accounts
      payable </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      205,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      &nbsp;642,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp; Accrued expenses
      </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      576,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      349,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp; Income taxes payable
      </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      485,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      29,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Total current liabilities </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,335,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,517,000&nbsp;</font></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">&nbsp;</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"><font size="2" face="Arial">Long-term debt to a shareholder,
      net of current portion</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      &nbsp;&nbsp;&nbsp;93,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      145,000&nbsp;</font></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">&nbsp;</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"><font size="2" face="Arial">Total liabilities</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,428,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,662,000&nbsp;</font></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">&nbsp;</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"><font size="2" face="Arial">Commitments and contingencies
      </font></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"><font size="2" face="Arial">Shareholders' equity:</font></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"><font size="2" face="Arial">&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></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">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      283,000&nbsp;</font></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">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      283,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp; Common shares;
      no par value; 50,000,000 shares authorized; 8,858,600 and 8,711,600 shares
      issued and outstanding, respectively </font></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">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; 15,069,000&nbsp;</font></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">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; 14,999,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp; Accumulated
      deficit </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (7,106,000)</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (7,789,000)</font></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">&nbsp;</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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      8,245,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      7,493,000&nbsp;</font></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">&nbsp;</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"><font size="2" face="Arial">&nbsp;&nbsp; Receivable for stock
      purchase </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;
      &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(32,000)</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (51,000)</font></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">&nbsp;</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"><font size="2" face="Arial">Total shareholders' equity</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      8,214,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      7,442,000&nbsp;</font></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">&nbsp;</td>
      <td width="125" valign="top" style="width:93.9pt;border-top:medium none;border-left:
  medium none;border-bottom:medium none windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="right"></td>
      <td width="119" valign="top" style="width:89.35pt;border-top:medium none;border-left:
  medium none;border-bottom:medium none windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="right"></td>
    </tr>
    <tr>
      <td width="380" valign="top" style="width:284.75pt;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:medium none windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in">
      <font size="2" face="Arial">Total liabilities and
      shareholders' equity</font></td>
      <td width="125" valign="top" style="width:93.9pt;border-top:medium none;border-left:
  medium none;border-bottom:3px double windowtext;border-right:medium none windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="right">
      <font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;
      9,642,000&nbsp;</font></td>
      <td width="119" valign="top" style="width:89.35pt;border-top:medium none;border-left:
  medium none;border-bottom:3px double windowtext;border-right:medium none windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="right">
      <font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;
      9,104,000&nbsp;</font></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">&nbsp;</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="center"></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="center"></td>
    </tr>
  </table>
</div>
<p><i><font size="2" face="Arial">&nbsp;</font></i></p>
<p><i><font size="2" face="Arial">See notes to consolidated financial statements.</font></i></p>
<p style="text-autospace:none" align="center"><font face="Times New Roman">&nbsp;2</font></p>
<b><hr color="#000080">
<p><font size="2" face="Arial"><br clear="all" style="page-break-before:always">
</font></b></p>
<p style="text-autospace:none">&nbsp;</p>
<p align="center" style="text-align:center;text-autospace:none"><b>
<font size="2" face="Arial">PRO-DEX, INC. AND SUBSIDIARIES <br>
CONSOLIDATED
STATEMENTS OF INCOME<br>
(Unaudited)</font></b></p>
<div align="left">
  <table class="MsoNormalTable" border="1" cellspacing="0" cellpadding="0" width="561" style="width:725;margin-left:0in;border-collapse:collapse;border:medium none; ">
    <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"></td>
      <td colspan="2" valign="top" style="border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">Three Months
      Ended March 31,</font></i></td>
    </tr>
    <tr style="page-break-inside:avoid">
      <td valign="top" style="border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">2004</font></i></td>
      <td valign="top" style="border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">2003</font></i></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">&nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt"></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"><font size="2" face="Arial">Net sales </font></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"><font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;
      3,302,000&nbsp;</font></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"><font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;
      3,079,000&nbsp;</font></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">&nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" 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"><font size="2" face="Arial">Cost of sales</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,698,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,899,000&nbsp;</font></td>
    </tr>
    <tr style="height:4.5pt">
      <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:4.5pt"><font size="2" face="Arial">Gross profit </font>
      </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:4.5pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,604,000&nbsp;</font></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:4.5pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,180,000&nbsp;</font></td>
    </tr>
    <tr style="height:4.5pt">
      <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:4.5pt">&nbsp;</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:4.5pt" align="right"></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:4.5pt" align="right"></td>
    </tr>
    <tr style="height:4.5pt">
      <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:4.5pt"><font size="2" face="Arial">Operating expenses:
      </font></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:4.5pt" align="right"></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:4.5pt" 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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Selling
      </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      231,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      229,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; General
      and administrative expenses </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      501,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      547,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Research
      and development costs </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      472,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      298,000&nbsp;</font></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"><font size="2" face="Arial">Total operating expenses </font>
      </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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,204,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,074,000&nbsp;</font></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">&nbsp;</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="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"></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"><font size="2" face="Arial">Income from operations </font>
      </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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      400,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      106,000&nbsp;</font></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">&nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" 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"><font size="2" face="Arial">Other income (expense): </font>
      </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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" 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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Royalty
      income </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      40,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      ---&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Other
      income, net </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      &nbsp;4,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      &nbsp;8,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Interest
      (expense) </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (9,000)</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (21,000)</font></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"><font size="2" face="Arial">Total</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      35,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (13,000)</font></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">&nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" 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"><font size="2" face="Arial">Income before provision for income
      taxes (credits)</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      435,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      93,000&nbsp;</font></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">&nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" 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"><font size="2" face="Arial">Provision for income taxes</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      174,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      37,000&nbsp;</font></td>
    </tr>
    <tr style="height:9.0pt">
      <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:9.0pt"><font size="2" face="Arial">Net Income</font></td>
      <td width="108" valign="top" style="width:81.0pt;border-top:none;border-left:
  none;border-bottom:double windowtext 2.25pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:9.0pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      261,000&nbsp;</font></td>
      <td width="105" valign="top" style="width:78.75pt;border-top:none;border-left:
  none;border-bottom:double windowtext 2.25pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:9.0pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      56,000&nbsp;</font></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"><font size="2" face="Arial">Net Income per share:</font></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="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"></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">
      <p style="margin-left:17.1pt"><font size="2" face="Arial">Basic </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.03&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.01&nbsp;</font></td>
    </tr>
    <tr style="height:13.9pt">
      <td width="348" valign="bottom" 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:13.9pt">
      <p style="margin-left:17.1pt"><font size="2" face="Arial">Diluted&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      </font></td>
      <td width="108" valign="bottom" 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;height:13.9pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.03&nbsp;</font></td>
      <td width="105" valign="bottom" 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:13.9pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.01&nbsp;</font></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">
      &nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" align="right"></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">
      <font size="2" face="Arial">Weighted average shares outstanding - basic</font></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" face="Arial">&nbsp;&nbsp;&nbsp;
      8,797,325&nbsp;</font></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">
      <p><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;
      8,723,700&nbsp;</font></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">
      &nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" align="right"></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"><font size="2" face="Arial">Weighted average shares
      outstanding - diluted</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      9,398,688&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      8,910,899&nbsp;</font></td>
    </tr>
  </table>
</div>
<p align="center" style="text-align:center"><i><font size="2" face="Arial">See notes to
consolidated financial statements.</font></i></p>
<p align="center" style="text-align:center"><font face="Times New Roman">3</font></p>
<b><hr color="#000080">
<p><font size="2" face="Arial"><br clear="all" style="page-break-before:always">
</font></b></p>
<p align="center" style="text-align:center;text-autospace:none"><b>
<font size="2" face="Arial">PRO-DEX, INC. AND SUBSIDIARIES <br>
CONSOLIDATED
STATEMENTS OF INCOME<br>
(Unaudited)</font></b></p>
<div align="left">
  <table class="MsoNormalTable" border="1" cellspacing="0" cellpadding="0" width="561" style="width:725;margin-left:0in;border-collapse:collapse;border:medium none; ">
    <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"></td>
      <td colspan="2" valign="top" style="border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">Nine Months
      Ended March 31,</font></i></td>
    </tr>
    <tr style="page-break-inside:avoid">
      <td valign="top" style="border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">2004</font></i></td>
      <td valign="top" style="border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">2003</font></i></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">&nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt"></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"><font size="2" face="Arial">Net sales </font></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"><font size="2" face="Arial">$&nbsp; &nbsp;10,534,000&nbsp;</font></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"><font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;
      8,678,000&nbsp;</font></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">&nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" 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"><font size="2" face="Arial">Cost of sales </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;
      &nbsp;&nbsp;5,683,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      5,090,000&nbsp;</font></td>
    </tr>
    <tr style="height:4.5pt">
      <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:4.5pt"><font size="2" face="Arial">Gross profit </font>
      </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:4.5pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      4,851,000&nbsp;</font></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:4.5pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      3,588,000&nbsp;</font></td>
    </tr>
    <tr style="height:4.5pt">
      <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:4.5pt">&nbsp;</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:4.5pt" align="right"></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:4.5pt" align="right"></td>
    </tr>
    <tr style="height:4.5pt">
      <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:4.5pt"><font size="2" face="Arial">Operating expenses:
      </font></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:4.5pt" align="right"></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:4.5pt" 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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Selling
      </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      &nbsp;629,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      540,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; General
      and administrative expenses </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,796,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,849,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Research
      and development costs </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,299,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,071,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;
      Amortization</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      ---&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      32,000&nbsp;</font></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"><font size="2" face="Arial">Total operating expenses </font>
      </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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      3,724,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      3,492,000&nbsp;</font></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">&nbsp;</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="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"></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"><font size="2" face="Arial">&nbsp;Income from operations </font>
      </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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,127,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      96,000&nbsp;</font></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">&nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" 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"><font size="2" face="Arial">Other income (expense): </font>
      </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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" 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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Royalty
      income </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      40,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      ---&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Other
      income, net </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      16,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      &nbsp;4,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp; Interest
      (expense) </font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (44,000)</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (65,000)</font></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"><font size="2" face="Arial">Total</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      12,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (61,000)</font></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">&nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" 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"><font size="2" face="Arial">Income before provision for income
      taxes</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      1,139,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      35,000&nbsp;</font></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">&nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" 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"><font size="2" face="Arial">Provision for income taxes</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      456,000&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      14,000&nbsp;</font></td>
    </tr>
    <tr style="height:9.0pt">
      <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:9.0pt"><font size="2" face="Arial">Net Income</font></td>
      <td width="108" valign="top" style="width:81.0pt;border-top:none;border-left:
  none;border-bottom:double windowtext 2.25pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:9.0pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      683,000&nbsp;</font></td>
      <td width="105" valign="top" style="width:78.75pt;border-top:none;border-left:
  none;border-bottom:double windowtext 2.25pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:9.0pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      &nbsp;21,000&nbsp;</font></td>
    </tr>
    <tr style="height:13.9pt">
      <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:13.9pt"><font size="2" face="Arial">Net Income per
      share:</font></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;height:13.9pt" align="right"></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:13.9pt" align="right"></td>
    </tr>
    <tr style="height:13.9pt">
      <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:13.9pt">
      <p style="text-indent:17.1pt"><font size="2" face="Arial">Basic </font></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;height:13.9pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.08&nbsp;</font></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:13.9pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.00&nbsp;</font></td>
    </tr>
    <tr style="height:13.9pt">
      <td width="348" valign="bottom" 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:13.9pt">
      <p style="text-indent:17.1pt"><font size="2" face="Arial">Diluted&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      </font></td>
      <td width="108" valign="bottom" 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;height:13.9pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.07&nbsp;</font></td>
      <td width="105" valign="bottom" 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:13.9pt" align="right">
      <font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.00&nbsp;</font></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">
      &nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" align="right"></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"><font size="2" face="Arial">Weighted average shares
      outstanding - basic</font></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" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;
      8,779,913&nbsp;</font></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">
      <p><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;
      8,752,374&nbsp;</font></td>
    </tr>
    <tr>
      <td width="348" style="width:261.0pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt">&nbsp;</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="105" valign="top" style="width:78.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt" align="right">&nbsp;</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"><font size="2" face="Arial">Weighted average shares
      outstanding - diluted</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      9,288,056&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      8,892,995&nbsp;</font></td>
    </tr>
  </table>
</div>
<p align="center" style="text-autospace:none">
<font face="Arial"><i>
<font size="2">See notes to consolidated financial statements.</font></i></font></p>
<p align="center" style="text-align:center;text-autospace:none">
<font face="Times New Roman">4</font></p>
<b><hr color="#000080">
<p><font size="2" face="Arial"><br clear="all" style="page-break-before:always">
</font></b></p>
<p align="center" style="text-align:center;text-autospace:none"><b>
<font size="2" face="Arial">PRO-DEX, INC. AND SUBSIDIARIES <br>
CONSOLIDATED STATEMENTS OF CASH FLOWS<br>
(Unaudited)</font></b></p>
<div align="left">
  <table class="MsoNormalTable" border="1" cellspacing="0" cellpadding="0" style="margin-left:0pt;border-collapse:collapse;border:none" width="725">
    <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 colspan="2" valign="top" style="border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">Nine Months
      Ended March 31,</font></i></td>
    </tr>
    <tr style="page-break-inside:avoid">
      <td valign="top" style="border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">2004</font></i></td>
      <td valign="top" style="border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in" align="center">
      <p align="center" style="text-align:center"><i>
      <font size="2" face="Arial">2003</font></i></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">&nbsp;</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"><font size="2" face="Arial">Cash Flows from Operating
      Activities: </font></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"><font size="2" face="Arial">Net Income</font></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"><font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      683,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      21,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp; Adjustments to
      reconcile net income to net&nbsp;<br>
      &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;cash used in operating activities:</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Depreciation and amortization </font></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"><font size="2" face="Arial">273,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">285,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Provision for doubtful accounts </font></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"><font size="2" face="Arial">10,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">49,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Reserve for obsolete inventory </font></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"><font size="2" face="Arial">(116,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">--&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Non-cash consulting services</font></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"><font size="2" face="Arial">19,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">19,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Deferred taxes </font></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"><font size="2" face="Arial">20,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">--&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Changes in:</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (Increase) in accounts receivable </font></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"><font size="2" face="Arial">(278,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">(575,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (Increase) decrease in inventories </font></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"><font size="2" face="Arial">350,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">(19,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (Increase) in prepaid expenses </font></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"><font size="2" face="Arial">(29,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">(22,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Decrease in other assets</font></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"><font size="2" face="Arial">9,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">3,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      (Decrease) in accounts payable and accrued expense </font></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"><font size="2" face="Arial">(237,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">(76,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Increase in income taxes payable </font></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"><font size="2" face="Arial">456,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">15,000&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    </tr>
    <tr style="height:6.25pt">
      <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:6.25pt">&nbsp;</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:6.25pt" 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:6.25pt" 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"><font size="2" face="Arial">Net Cash provided by (used in)
      Operating Activities </font></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"><font size="2" face="Arial">1,160,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">(300,000)&nbsp;&nbsp;&nbsp;</font></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">&nbsp;</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"><font size="2" face="Arial">Cash Flows From
      Investing Activities: </font></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"><font size="2" face="Arial">&nbsp;&nbsp;
      Proceeds from sale of discontinued operations </font></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">
      <font size="2" face="Arial">---&nbsp;&nbsp;&nbsp;&nbsp;</font></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">
      <font size="2" face="Arial">790,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;&nbsp; Net additions to
      equipment and leasehold improvements </font></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"><font size="2" face="Arial">(233,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">(262,000)&nbsp;&nbsp;&nbsp;</font></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">&nbsp;</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"><font size="2" face="Arial">Net Cash provided by (used in)
      Investing Activities </font></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"><font size="2" face="Arial">&nbsp;(233,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;528,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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">&nbsp;</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"><font size="2" face="Arial">Cash Flows from Financing
      Activities:</font></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" face="Arial">&nbsp;&nbsp;&nbsp; Principal
      payments on long-term borrowings </font></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"><font size="2" face="Arial">(54,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">(97,000)&nbsp;&nbsp;&nbsp;</font></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" face="Arial">&nbsp;&nbsp;&nbsp; Net
      payments on line of credit </font></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"><font size="2" face="Arial">(432,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">(11,000)&nbsp;&nbsp;&nbsp;</font></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" face="Arial">&nbsp;&nbsp;&nbsp;
      Additional paid in capital </font></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"><font size="2" face="Arial">70,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">---&nbsp;&nbsp;&nbsp;&nbsp;</font></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" face="Arial">&nbsp;&nbsp;&nbsp; Stock
      repurchases </font></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"><font size="2" face="Arial">---&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">(32,000)&nbsp;&nbsp;&nbsp;</font></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">&nbsp;</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">&nbsp;</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"><font size="2" face="Arial">Net Cash (used in) Financing
      Activities</font></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"><font size="2" face="Arial">(416,000)&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">(140,000)&nbsp;&nbsp;&nbsp;</font></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">&nbsp;</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"><font size="2" face="Arial">Net Increase in Cash and Cash
      Equivalents </font></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"><font size="2" face="Arial">511,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">88,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">Cash and Cash Equivalents,
      beginning of period </font></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"><font size="2" face="Arial">&nbsp;795,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">&nbsp;236,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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">&nbsp;</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">&nbsp;</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">&nbsp;</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"><font size="2" face="Arial">Cash and Cash Equivalents, end of
      period </font></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"><font size="2" face="Arial">$&nbsp;&nbsp; &nbsp;1,306,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      324,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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">&nbsp;</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"></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"></td>
    </tr>
  </table>
</div>
<p align="center" style="text-align:center"><i><font size="2" face="Arial">Supplemental
Information</font></i></p>
<div align="left">
  <table class="MsoNormalTable" border="1" cellspacing="0" cellpadding="0" style="margin-left:0pt;border-collapse:collapse;border:none" width="725">
    <tr>
      <td width="414" valign="top" style="width:310.5pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt"><font size="2" face="Arial">Cash payments
      for interest</font></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"><font size="2" face="Arial">$42,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">$68,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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">&nbsp;</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:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt"><font size="2" face="Arial">Cash payments for
      income taxes </font></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"><font size="2" face="Arial">$6,000&nbsp;&nbsp;&nbsp;&nbsp;</font></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"><font size="2" face="Arial">$2,000&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
    </tr>
  </table>
</div>
<p><i><font size="2" face="Arial">&nbsp;</font></i></p>
<p align="center" style="text-align:center"><i><font size="2" face="Arial">See notes to
consolidated financial statements.</font></i></p>



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



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



<p align=center style='text-align:center'><font face="Times New Roman">5</font></p>





<p style='text-autospace:none'><b>&nbsp;</b></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>
</b><b>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS </b></p>

<p align=center style='text-align:left;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 Pro-Dex, Inc. (&quot;Pro-Dex&quot;
or the &quot;Company&quot;) Annual Report for the fiscal year ended June 30,
2003.&nbsp; In the opinion of management, all adjustments 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>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>



<div align="left">



<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=546
 style='width:650;border-collapse:collapse;border-collapse:
 collapse;border:medium none msorm; ' bordercolor="#111111">
 <tr>
  <td width=288 valign=bottom style='width:216.25pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  solid windowtext 1.0pt !msorm;border-bottom:none !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=108 valign=bottom style='width:81.0pt;border:none;border-top:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-top:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>March
  31, 2004<br>
  <u>(unaudited)</u></p>
  </td>
  <td width=150 valign=bottom 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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>&nbsp;June 30, 2003</u>&nbsp;<u> </u></p>
  </td>
 </tr>
 <tr>
  <td width=288 valign=top style='width:216.25pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Raw materials </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 1,151,000 </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 1,443,000 </p>
  </td>
 </tr>
 <tr>
  <td width=288 valign=top style='width:216.25pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Work in process </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>328,000 </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>340,000 </p>
  </td>
 </tr>
 <tr>
  <td width=288 valign=top style='width:216.25pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Development costs under
  contract</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>3,000</p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>181,000</p>
  </td>
 </tr>
 <tr>
  <td width=288 valign=top style='width:216.25pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Finished goods </u></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>1,394,000 </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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=288 valign=top style='width:216.25pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp; Total
  </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>2,876,000 </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>3,227,000 </p>
  </td>
 </tr>
 <tr>
  <td width=288 valign=top style='width:216.25pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Reserve for slow moving
  items </u></p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (275,000) </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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=288 valign=top style='width:216.25pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp; Total
  inventories, net </p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp; &nbsp; 2,601,000 </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'>$&nbsp; 2,835,000 </p>
  </td>
 </tr>
</table>





</div>





<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'>In accordance
with the requirements of SFAS No. 142, the Company 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 March 31, 2004, management
determined that there are no events or circumstances which have occurred that
would indicate an impairment of the goodwill had occurred.</p>











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











<p style='text-align:center;'>6</p>











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











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

</p>



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











<p style='text-autospace:none'><b>NET INCOME 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 (unaudited).</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=630
 style='width:472.5pt;margin-left:18.9pt;border-collapse:collapse;border-collapse:collapse;border:medium none msorm; ' bordercolor="#111111">
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td width=375 valign=top style='width:281.4pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=255 colspan=2 valign=top style='width:191.1pt;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;border-top:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>Nine Months Ended March
  31,</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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>2004</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>2003</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=126 valign=top style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Net
  income </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 683,000</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;21,000</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Basic net income 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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=126 valign=top style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,779,913</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,752,374</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Basic net income 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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.08</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  &nbsp;</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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=126 valign=top style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Diluted net income
  per 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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </td>
  <td width=126 valign=top style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,779,913</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,752,374</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 374,764</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp; 60,919</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities
  (warrants)&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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;55,250</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; 1,573</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=bottom 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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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=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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 78,129</p>
  </td>
  <td width=126 valign=bottom style='width:94.5pt;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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  78,129</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,288,056</p>
  </td>
  <td width=126 valign=bottom style='width:94.5pt;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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,892,995</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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Diluted net income 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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.07</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.00</p>
  </td>
 </tr>
</table>

</div>





<p style='text-autospace:none'><b>LINE OF CREDIT</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 were to expire May 2005 and required monthly interest
payments at the prime rate plus 1.00% to 1.75% based on outstanding borrowings,
with a minimum interest charge of $12,500 per quarter.&nbsp; The outstanding
borrowings were secured by all assets of the Company's two subsidiaries, Micro
Motors and OMS, and were guaranteed by the Company. </p>



<p style='text-align:justify;text-indent:.5in'>In October 2003,
the credit facility with WFBCI was ended and refinanced with a more favorable
facility 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 March 31, 2004), or LIBOR plus
2.75%, based on outstanding borrowings, with no minimum interest charge.&nbsp;
The outstanding borrowings are secured by all assets of the Company's two
subsidiaries, Micro Motors and Oregon Micro Systems (OMS), and are guaranteed
by the Company.&nbsp; There was no outstanding balance under the terms of this
credit facility as of March 31, 2004.&nbsp; The total eligible borrowing
capacity based on the receivables balances at March 31, 2004 was $1,199,000.</p>



<p style='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 March 31, 2004 the
Company was in compliance with all covenants.</p>

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

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

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

<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 $450,000 Not to Compete liability offset
by a $273,000 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 debt:</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=560
 style='width:600;margin-left:0in;border-collapse:collapse;border-collapse:
 collapse' bordercolor="#111111">
 <tr>
  <td width=436 valign=top style='width:326.95pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  solid windowtext 1.0pt !msorm;border-bottom:none !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Total Not to Compete payable</p>
  </td>
  <td width=124 valign=top style='width:92.95pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 450,000</p>
  </td>
 </tr>
 <tr>
  <td width=436 valign=top style='width:326.95pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Less: interest portion </u></p>
  </td>
  <td width=124 valign=top style='width:92.95pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;37,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=436 valign=top style='width:326.95pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Net Not to Compete payable</p>
  </td>
  <td width=124 valign=top style='width:92.95pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  <u>$&nbsp;&nbsp;&nbsp;&nbsp; 413,000</u></p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none; margin-top:0; margin-bottom:0.0001pt'>&nbsp;</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=560
 style='width:600;margin-left:0in;border-collapse:collapse;border-collapse:
 collapse' bordercolor="#111111">
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  solid windowtext 1.0pt !msorm;border-bottom:none !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Total Note Receivable</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 273,000</p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Less: interest portion </u></p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Net Note Receivable</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  <u>$&nbsp;&nbsp;&nbsp;&nbsp; 251,000</u></p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none; margin-top:0; margin-bottom:0.0001pt'>&nbsp;</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=560
 style='width:600;margin-left:0in;border-collapse:collapse;border-collapse:
 collapse' bordercolor="#111111">
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  solid windowtext 1.0pt !msorm;border-bottom:none !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Net Not to Compete payable</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 413,000</p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Less: Net Note Receivable</u></p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;251,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Total Net Debt to shareholder</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  <u>$&nbsp;&nbsp;&nbsp;&nbsp; 162,000</u></p>
  </td>
 </tr>
</table>

</div>

<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:600;margin-left:0pt;border-collapse:collapse;
 border-collapse:collapse' bordercolor="#111111">
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  solid windowtext 1.0pt !msorm;border-bottom:none !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $&nbsp;&nbsp; &nbsp;162,000</p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>Less net current portion </u></p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;69,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Net Long-term debt </p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 93,000</u></p>
  </td>
 </tr>
</table>

</div>

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

<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 a net operating
loss carry forward of $1,102,000 for State income tax purposes which expires
beginning in 2012.&nbsp; Tax credit carry forwards totaling $325,000 for Federal tax
purposes expire beginning in 2018 and $237,000 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 the Company's provision for
income taxes and the recoverability of the Company's deferred tax asset.&nbsp; It is
based on the Company's estimates of future taxable income by jurisdiction in
which it operates and the period over which the Company's 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, it may need
to establish a valuation allowance which could result in a tax provision up to
the carrying value of its deferred tax assets.</p>

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

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

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

<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 March 31, 2004, the Company granted no Common
Stock Options under the Director's Plan and no Common Stock Options under the
Employee's Plan.&nbsp; During the quarter ended March 31, 2004, 75,000 Common Stock warrants
expired unexercised.</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%, risk-free
interest rate of approximately 3.2%; 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;
 border-collapse:collapse !msorm;border:none !msorm'>
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <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;border:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border-top:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>Three Months Ended March
  31,</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;border:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>2004</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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>2003</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Net
  income 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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;261,000</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;56,000</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>



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



  <p align="center">---</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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

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

  <p>&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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>(Deduct) total stock-based
  employee and director 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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>



  <p>&nbsp;</p>

  <p>&nbsp;</p>

  <p><br>
  <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;---</u></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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>&nbsp;</p>
  <p>&nbsp;</p>
  <p><br>
  <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;---</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Pro-forma net income:</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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p><u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;261,000</u></p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p><u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 56,000</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;border:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Basic earnings 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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;0.03</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;0.01</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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;0.03</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;0.01</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Diluted earnings 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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border:none !msorm;
  border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;0.03</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;0.01</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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;0.03</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;0.01</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'><b>FUNDS HELD IN ESCROW, NET,
BUSINESS DIVESTITURES AND DISCONTINUED OPERATIONS</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-align:center;text-autospace:
none'>9</p>



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

</p>

<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 and the provision for income taxes are included in corporate (loss),
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:0in'>Operating Segment data for
the nine months ending March 31, 2004 and 2003 is as follows (in thousands): </p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=619
 style='width:464.6pt;border-collapse:collapse;border-collapse:collapse !msorm'>
 <tr>
  <td width=204 valign=bottom style='width:153.0pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>Nine
  months ended<br>
  March
  31, 2004</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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  <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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  <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;border:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Sales to 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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$8,316 </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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$2,218 </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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>$10,534 </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>231</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>42</p>
  </td>
  <td width=103 valign=top style='width:77.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>273</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>42</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>44 </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>1,105</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>621 </p>
  </td>
  <td width=103 valign=top style='width:77.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>(599) </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>1,127</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>5,908</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>2,080 </p>
  </td>
  <td width=103 valign=top style='width:77.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>1,654</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>9,642 </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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>200 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>33 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>233</p>
  </td>
 </tr>
 </table>

</div>



<p style='text-autospace:none; margin-top:0; margin-bottom:0.0001pt'>&nbsp;</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=624
 style='width:6.5in;border-collapse:collapse;border-collapse:collapse !msorm'>
 <tr>
  <td width=204 valign=bottom style='width:152.95pt;border:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>Nine
  months ended<br>
  March
  31, 2003</p>
  </td>
  <td width=90 valign=bottom style='width:67.45pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>

  <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;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>

  <p align=center style='text-align:center;text-autospace:none'>Total</p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Sales to 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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$6,706 </p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$1,972 </p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>$8,678 </p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>219</p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>66</p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>285</p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>64</p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>64 </p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>386</p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>389 </p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>(679) </p>
  </td>
  <td width=96 valign=top style='width:71.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>96 </p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>6,391</p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>1,304 </p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>2,112</p>
  </td>
  <td width=96 valign=top style='width:71.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>9,807 </p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>231 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>31 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>262</p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

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

</div>



<p style='text-autospace:none'>Operating Segment data for the
three months ending March 31, 2004 and 2003 is as follows (in thousands): </p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=619
 style='width:464.6pt;border-collapse:collapse;border-collapse:collapse !msorm'>
 <tr>
  <td width=204 valign=bottom style='width:153.0pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  months ended<br>
  March
  31, 2004</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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  <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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  <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;border:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Sales to 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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$2,455 </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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$847 </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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>$3,302 </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>66</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>12</p>
  </td>
  <td width=103 valign=top style='width:77.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>78</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>9</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>11 </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>309</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>220 </p>
  </td>
  <td width=103 valign=top style='width:77.35pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>(129) </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>400 </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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>67 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>18 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>85</p>
  </td>
 </tr>
 </table>

</div>



<p style='text-autospace:none; margin-top:0; margin-bottom:0.0001pt'>&nbsp;</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=624
 style='width:6.5in;border-collapse:collapse;border-collapse:collapse !msorm'>
 <tr>
  <td width=204 valign=bottom style='width:152.95pt;border:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  months ended<br>
  March
  31, 2003</p>
  </td>
  <td width=90 valign=bottom style='width:67.45pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>

  <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;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>

  <p align=center style='text-align:center;text-autospace:none'>Total</p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Sales to 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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$2,400 </p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$679 </p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>$3,079 </p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>73</p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>11</p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>84</p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>21</p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>21 </p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>57</p>
  </td>
  <td width=126 valign=top style='width:94.85pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>186 </p>
  </td>
  <td width=106 valign=top style='width:79.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>(137) </p>
  </td>
  <td width=96 valign=top style='width:71.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>106 </p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>150 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>6 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:5.35pt;text-align:right;
  text-autospace:none'>156</p>
  </td>
  <td width=2 valign=top style='width:1.25pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

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

</div>

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



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



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



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

</p>

<p style='text-autospace:none'>&nbsp;</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 and nine month periods ended March 31, 2003 and 2004, 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'>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-indent:.5in;text-autospace:
none'>Pro-Dex, Inc. (&quot;Pro-Dex&quot; or the &quot;Company&quot;) a Colorado
corporation organized in 1978, currently generates its revenues, earnings, and
subsequent cash flows 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 driven rotary
handpieces 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,
medical analysis equipment industries and government research. </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 style='text-align:justify;text-indent:.5in'>The Company is
able to benefit from industry trends toward increased outsourcing and
specialized vendor services as it provides high technology applications while
implementing its &quot;speed to market&quot; philosophy.&nbsp; This philosophy brings added
value to our customers and their customers by developing and implementing
leading edge products faster and more cost competitively than our customers'
internal resources could provide.&nbsp; As the Company is a technological leader in the
development of miniature rotary drive systems and embedded multi-axis motion
control devices, it has benefited from the overall economy's growth in spending
in this area.&nbsp; The growth in the Company's product offerings to include
additional medical products has been successful in changing the Company from a
seller of dental and semiconductor products to a&nbsp; Company that provides
technology driven speed to market, leaving it less at risk to single, more cyclical semi-conductor and
dental markets.&nbsp; Management believes these economic trends will continue and
there remains a great opportunities for the Company to grow.&nbsp; If however,
economic and industry factors change away from outsourcing, or the medical
products industry changes in an adverse direction, Pro-Dex would once again be
forced to alter its strategy.</p>



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



<p style='text-align:center;'>11</p>



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

</p>



<p><b>COMPANY AND SUBSIDIARY OVERVIEW</b></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.&nbsp; Additional savings are expected in fiscal year 2004,
although not at as high a level.</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"><u>www.pro-dex.com</u></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, press releases and the latest earnings
call audio feed 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><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, 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 Micro Motors brand name
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 low speed 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 Motors' historical business.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Company-funded research and development supports the development of new 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.&nbsp; 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'>&nbsp;</p>



<p style='text-align:center;text-autospace:
none'>12</p>



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

</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 products 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>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:-14.75pt;border-collapse:collapse;border-collapse:collapse' width="600" bordercolor="#111111">
 <tr>
  <td width=224 style='width:168.1pt;border:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><b><u>Micro Motors Market
  Segment </u></b></p>
  </td>
  <td width=68 style='width:50.75pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>1st
  9 months<br>
  FY
  2004</u></b></p>
  </td>
  <td width=72 style='width:.75in;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>1st
  9 months<br>
  FY
  2003</u></b></p>
  </td>
  <td width=24 style='width:.25in;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>&nbsp;</p>
  </td>
  <td width=66 style='width:49.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>FY
  2003</u></b></p>
  </td>
  <td width=84 style='width:63.0pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>43%
  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>56%
  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>47%</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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>31%
  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>8%
  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>5%</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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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 March 31, 2004, Micro Motors had a backlog, including
orders for delivery beyond 60 days, of $2.5 million compared with a backlog of $5.3
million at March 31, 2003.&nbsp; The decreased backlog is due to Micro Motors
transitioning to a royalty payment agreement from a manufacturing agreement for
its HealOzone product and the timing of long term blanket purchase orders,
resulting in a lack of new long term purchase orders contracted in the period.&nbsp;
Micro Motors expects to ship more than 80% of its backlog during the next 6
months.&nbsp; Although Micro Motors may experience seasonal fluctuations in its
new order
bookings due to the timing of major medical and dental sales shows and events,
it does not typically experience seasonal fluctuations in its order shipments. </p>



<p><b>Oregon Micro Systems (OMS)</b></p>



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



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



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

</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 fiscal year 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 changing market conditions, OMS also reduced its number of employees, made
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<sup>&reg;</sup> processor (PowerPC<sup>&reg; </sup>is a trademark of Intel Corporation).&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; One example is the MAX
system, which is a next generation motion control product that became available
for sale in the latter part of fiscal 2003.&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, factory automation and government.&nbsp;
Historically, the semiconductor equipment markets have accounted for up to 60%
of OMS' sales.&nbsp; 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>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='margin-left:-14.75pt;border-collapse:collapse' width="545">
 <tr>
  <td valign=bottom style='width:224;border:1.0pt solid windowtext;
  padding:0in; '>
  <p><b><u>OMS Market Segment</u></b></p>
  </td>
  <td style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:68;border-left:medium none;padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>1st
  9 months<br>
  FY
  2004</u></b></p>
  </td>
  <td style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:72;border-left:medium none;padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>1st
  9 months<br>
  FY
  2003</u></b></p>
  </td>
  <td style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:24;border-left:medium none;padding:0in; '>
  <p align=right style='text-align:right;text-autospace:none'>&nbsp;</p>
  </td>
  <td style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:65;border-left:medium none;padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>FY
  2003</u></b></p>
  </td>
  <td style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:85;border-left:medium none;padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>FY
  2002</u></b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:224;border-top:medium none;padding:0in; '>
  <p>Semiconductor </p>
  </td>
  <td valign=top style='width:68;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>47% </p>
  </td>
  <td valign=top style='width:72;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>49% </p>
  </td>
  <td valign=top style='width:24;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:65;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>49% </p>
  </td>
  <td valign=top style='width:85;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>38% </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:224;border-top:medium none;padding:0in; '>
  <p>Medical</p>
  </td>
  <td valign=top style='width:68;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>22%</p>
  </td>
  <td valign=top style='width:72;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>19%</p>
  </td>
  <td valign=top style='width:24;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:65;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>19%</p>
  </td>
  <td valign=top style='width:85;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>25% </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:224;border-top:medium none;padding:0in; '>
  <p>Factory Automation</p>
  </td>
  <td valign=top style='width:68;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>10% </p>
  </td>
  <td valign=top style='width:72;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>8% </p>
  </td>
  <td valign=top style='width:24;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:65;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>8% </p>
  </td>
  <td valign=top style='width:85;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>9% </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:224;border-top:medium none;padding:0in; '>
  <p>Government</p>
  </td>
  <td valign=top style='width:68;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>17%</p>
  </td>
  <td valign=top style='width:72;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>16% </p>
  </td>
  <td valign=top style='width:24;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:65;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>16% </p>
  </td>
  <td valign=top style='width:85;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>19% </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; width:224;border-top:medium none;padding:0in; '>
  <p>Other</p>
  </td>
  <td valign=top style='width:68;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>4%</p>
  </td>
  <td valign=top style='width:72;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>8%</p>
  </td>
  <td valign=top style='width:24;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>

  </td>
  <td valign=top style='width:65;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>8%</p>
  </td>
  <td valign=top style='width:85;border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; '>
  <p align=right style='text-align:right'>9%</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'>At the present
time, OMS is generally able to fill orders within forty-five (45) days.&nbsp; At
March 31, 2004, OMS had a backlog, including orders for delivery beyond 45
days,&nbsp;of $775,000 compared with a backlog of $573,000 at March 31, 2003.&nbsp;
OMS does not typically experience seasonal fluctuations in its new order bookings,
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 style='text-align:justify'>&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 the recovery of deferred income tax assets.</p>



<p style='text-align:center'>14</p>



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

</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>RESULTS OF OPERATIONS</b></p>

<p style='text-autospace:none'><b>For the Three-Month periods
ended March 31, 2004 and 2003</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. </p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='margin-left:9.9pt;border-collapse:collapse;border:none;border-collapse:
 collapse !msorm;border:none !msorm' height="268">
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td width=393 rowspan=2 valign=top style='width:294.75pt;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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="38">

  </td>
  <td width=225 colspan=2 valign=top style='width:168.75pt;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;border-top:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="18">
  <p align=center style='text-align:center'>Three Months Ended March
  31,</p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td width=123 valign=top style='width:92.25pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="18">
  <p align=center style='text-align:center'>2004</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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="18">
  <p align=center style='text-align:center'>2003</p>
  </td>
 </tr>
 <tr>
  <td width=393 valign=top style='width:294.75pt;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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="17">
  <p>Net Revenues: </p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="17">
  <p style='margin-right:-.05in'>&nbsp;100.0%&nbsp;&nbsp;&nbsp;&nbsp;&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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="17">
  <p style='margin-right:-.05in'>&nbsp;100.0%&nbsp;&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=393 valign=top style='width:294.75pt;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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="18">
  <p>Cost of Goods Sold </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 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="18">
  <p style='margin-right:-.05in'>&nbsp;51.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="18">
  <p style='margin-right:-.05in'>&nbsp;61.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=393 valign=top style='width:294.75pt;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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="17">
  <p>Gross Profit </p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="17">
  <p style='margin-right:-.05in'>48.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="17">
  <p style='margin-right:-.05in'>38.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=393 valign=top style='width:294.75pt;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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="17">

  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="17">

  </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="17">

  </td>
 </tr>
 <tr>
  <td width=393 valign=top style='width:294.75pt;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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="17">
  <p>Selling, General and
  Administrative Expenses </p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="17">
  <p style='margin-right:-.05in'>22.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="17">
  <p style='margin-right:-.05in'>25.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=393 valign=top style='width:294.75pt;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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="18">
  <p>Research and Development Costs </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 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="18">
  <p style='margin-right:-.05in'>14.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="18">
  <p style='margin-right:-.05in'>9.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=393 valign=top style='width:294.75pt;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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="17">
  <p>Income 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=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="17">
  <p style='margin-right:-.05in'>12.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="17">
  <p style='margin-right:-.05in'>3.4 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=393 valign=top style='width:294.75pt;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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="17">

  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="17">

  </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="17">

  </td>
 </tr>
 <tr>
  <td width=393 valign=top style='width:294.75pt;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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="12">
  <p>Net interest and other expense (income)</p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="12">
  <p>(1.0)&nbsp;&nbsp;&nbsp;&nbsp;&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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="12">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=393 valign=top style='width:294.75pt;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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="18">

  </td>
  <td width=123 valign=top style='width:92.25pt;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;border-top:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="18">

  </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;border-top:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="18">

  </td>
 </tr>
 <tr>
  <td width=393 valign=top style='width:294.75pt;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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' height="18">
  <p>Provision for Income
  Taxes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </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 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="18">
  <p style='margin-right:-.05in'>5.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="18">
  <p style='margin-right:-.05in'>1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=393 valign=top style='width:294.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm' height="18">
  <p>Net Income</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 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="18">
  <p style='margin-right:-5.4pt'><u>7.9%&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right" height="18">
  <p style='margin-right:-5.4pt'><u>1.8%&nbsp;&nbsp;&nbsp; </u></p>
  </td>
 </tr>
</table>

</div>

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



<p style='text-align:center;text-indent:.5in'>15</p>



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

</p>

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



<p style='text-align:justify;text-indent:.5in'><b>Net Sales.</b>&nbsp;
Consolidated sales increased $223,000 or 7% for the quarter ended March 31, 2004,
compared to the quarter ended March 31, 2003, due to increased sales at both
Micro Motors and OMS.&nbsp; At Micro
Motors, a 2% gain as compared to the same quarter last year was due to
especially large increases in shipments of its medical products, which
increased by over 249%.&nbsp; Shipments to dental customers decreased 32% as Healozone
shipments in the prior quarter were replaced by royalty payments.&nbsp; Sales
to industrial customers decreased as the demand for a motor associated with commercial
sewing applications declined. &nbsp;Development fees were reduced by 62% as
development projects transitioned to medical customer production
contracts.&nbsp; OMS sales increased by a 25% as&nbsp;sales to customers inside
and outside the semiconductor industry regained strength.&nbsp; Although strategic
price changes were implemented throughout the quarter at both OMS and Micro
Motors, the majority of the sales growth is due to higher volumes.&nbsp; Net sales
by subsidiary and type of customer were as follows: </p>



<div align=center>

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

  </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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=246 colspan=3 valign=top style='width:184.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  Months Ended March 31,<br>
  2004&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2003</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Dental</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>$</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,026,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>$</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,504,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>(32%)</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Medical </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,027,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>294,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>249%</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Industrial</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>144,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>185,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>(22%)</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Development Fees</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>106,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>284,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>(62%)</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>&nbsp;&nbsp; Repair &amp; Other</u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>152,000</u></p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>133,000</u></p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'><u>14%</u></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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>$</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>2,455,000 </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>$</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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>2,400,000 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>2%</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  &nbsp;

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

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

  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

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

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

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Semiconductor</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>398,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>333,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>20%</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Medical </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>186,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>129,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>44%</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>&nbsp;&nbsp; Other</u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>263,000</u></p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>217,000</u></p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'><u>21%</u></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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Oregon Micro Systems </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>$</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>847,000 </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>$</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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>679,000 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>25%</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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>3,302,000 </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>3,079,000 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>7%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Gross Profit &amp; Margin</b>.&nbsp; The Company's consolidated gross
profit for the quarter ended March 31, 2004 increased 36% over the same quarter
in the previous year due to increased sales at both subsidiaries and a more
profitable sales mix. Gross profit as a percentage of sales increased to 49%
for the quarter ended March 31, 2004 compared to 38% for the quarter ended March
31, 2003 as the continued gains from increased sales, manufacturing cost
improvements and a richer product mix favoring OMS and medical shipments at
Micro Motors were realized.&nbsp; Gross margin at Micro Motors increased from 29% of
sales in 2003 to 42% of sales in 2004 due to the increased sales and more
profitable product mix favoring medical shipments.&nbsp; Gross Margin at OMS decreased
from 71% of sales in 2003 to 69% of sales in 2004 due to the pricing associated
with the large production contracts fulfilled in the quarter.&nbsp; Gross profit and
margin by subsidiary were as follows: </p>



<p style='text-indent:.5in;text-autospace:none'><b>Gross Profit</b></p>

<div align=center>

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

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

  </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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  Months Ended March 31,</p>
  </td>
  <td width=93 valign=top style='width:69.9pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

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

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>2004</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td width=93 valign=top style='width:69.9pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>1,023,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>703,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=93 valign=top style='width:69.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>46%</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>581,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>477,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=93 valign=top style='width:69.9pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>22%</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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>1,604,000&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;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>1,180,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=93 valign=top style='width:69.9pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>36%</p>
  </td>
 </tr>
</table>

</div>



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

<div align=center>

<table class=MsoTableGrid border=1 cellspacing=0 cellpadding=0
 style='border-collapse:collapse;border:none'>
 <tr>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
  <td colspan=2 valign=top style='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 style='text-autospace:none'>Three Months Ended March 31,</p>
  </td>
  <td valign=top style='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;text-autospace:none'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='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 style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
  <td valign=top style='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;text-autospace:none'>2004</p>
  </td>
  <td valign=top style='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;text-autospace:none'>2003</p>
  </td>
  <td valign=top style='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;text-autospace:none'>&nbsp;(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='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'>Micro Motors </p>
  </td>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>41.7%</p>
  </td>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>29.3%</p>
  </td>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>12.4%</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='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'><u>Oregon Micro Systems

  </u></p>
  </td>
  <td valign=top style='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;text-autospace:none'>68.6%</p>
  </td>
  <td valign=top style='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;text-autospace:none'>70.7%</p>
  </td>
  <td valign=top style='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;text-autospace:none'>(2.1%)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'>Weighted Average</p>
  </td>
  <td valign=top style='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;text-autospace:none'>48.6%</p>
  </td>
  <td valign=top style='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;text-autospace:none'>38.3%</p>
  </td>
  <td valign=top style='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;text-autospace:none'>10.3%</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:justify;text-autospace:none'>&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; text-indent:0.5in'> <b>Selling,
General and Administrative Costs (S, G&amp;A)</b>.&nbsp; S, G &amp; A expenses
decreased slightly to $732,000 for the quarter ended March 31, 2004 from $776,000
for the quarter ended March 31, 2003.&nbsp; The decrease is mainly due to continued
Company wide cost control efforts, offset by increased subsidiary sales and
marketing expenses.&nbsp; S, G &amp; A costs by subsidiary were as follows: </p>



<div align=center>

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

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

  </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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center'>Three Months Ended
  March 31,</p>
  </td>
  <td width=105 valign=top style='width:78.9pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center'>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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

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

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center'>2004</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td width=105 valign=top style='width:78.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>425,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>469,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=105 valign=top style='width:78.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>(9%)</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>178,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>170,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=105 valign=top style='width:78.9pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>5%</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>129,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>137,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=105 valign=top style='width:78.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>(6%)</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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>732,000&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;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>776,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=105 valign=top style='width:78.9pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>(6%)</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Research and
Development Costs</b>.&nbsp; Research and development expenses increased to $472,000
for the quarter ended March 31, 2004 from $298,000 for the quarter ended March
31, 2003, an increase of 58%.&nbsp; The increase is due to increased Company funded
research and development at Micro Motors in support of the growing medical
product line and at OMS to support MAX system product line extensions.&nbsp; The MAX
system is a next generation motion control product that became available for
sale in the latter part of fiscal 2003.&nbsp; &nbsp; </p>



<p style='text-align:justify'>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 and multi axis motion control 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. 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'>Three Months Ended
  March 31,</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'>

  </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'>2004</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'>2003</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'>Increase </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-align:justify'>Micro Motors </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;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'>289,000&nbsp;&nbsp; </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;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'>177,000&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=center style='text-align:center'>63%</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-align:justify'><u>Oregon Micro Systems  </u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;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='text-align:right'>183,000&nbsp;&nbsp; </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;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'>121,000&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=center style='text-align:center'>51%</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-align:justify'>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 style='text-align:justify'>$ </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'>472,000&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'>$ </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'>298,000&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=center style='text-align:center'>58%</p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify'>&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 as inventory and recognized as costs of goods sold when
the contracted deliverable is made.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'><b>Operating
Profit &amp; Margin</b>.&nbsp; The Company's consolidated operating profit for
the quarter ended March 31, 2004 increased to $400,000 compared to the same
quarter in the previous year's operating profit of $106,000 due to the
increased sales, more profitable sales mix and controlled expenses at both
operating subsidiaries. Operating profit as a percentage of sales increased to 12.1%
for the quarter ended March 31, 2004 compared to 3.4% for the quarter ended March
31, 2003.&nbsp; Operating Profit at Micro Motors increased from 2.4% of sales
in 2003 to 12.6% of sales in 2004 due to the richer product mix favoring
medical products.&nbsp; Operating Profit at OMS decreased from 27.3% of sales
in 2003 to 26.0% of sales in 2004 due to lower gross margins and higher
research and development costs.&nbsp; Operating profit and margin by subsidiary were
as follows: </p>

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

<p style='text-autospace:none' align="center">&nbsp;17</p>



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

</p>

<p style='text-indent:.5in;text-autospace:none'><b>&nbsp;Operating Profit</b></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'>Three Months Ended March
  31,</p>
  </td>
  <td width=90 valign=top style='width:67.5pt;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'>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'>2004</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'>2003</p>
  </td>
  <td width=90 valign=top style='width:67.5pt;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'>(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-align:justify'>Micro Motors </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;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=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 309,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;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'>57,000&nbsp;&nbsp; </p>
  </td>
  <td width=90 valign=top style='width:67.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center'>442%</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-align:justify'>Oregon Micro Systems </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;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=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 220,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;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'>186,000&nbsp;&nbsp; </p>
  </td>
  <td width=90 valign=top style='width:67.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center'>18%</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-align:justify'><u>Corporate </u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;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='text-align:right'>(129,000)&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;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'>(137,000)&nbsp;&nbsp;
  </p>
  </td>
  <td width=90 valign=top style='width:67.5pt;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'>(6%)</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-align:justify'>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 style='text-align:justify'>$ </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=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 400,000&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'>$ </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'>106,000&nbsp;&nbsp; </p>
  </td>
  <td width=90 valign=top style='width:67.5pt;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'>277%</p>
  </td>
 </tr>
</table>

</div>

<p style='text-indent:.5in;text-autospace:none'><b>&nbsp;Operating
Margin</b></p>

<div align=center>

<table class=MsoTableGrid border=1 cellspacing=0 cellpadding=0
 style='border-collapse:collapse;border:none' width="562">
 <tr>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' width="220">
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
  <td colspan=2 valign=top style='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' width="204">
  <p style='text-autospace:none'>Three Months Ended March 31,</p>
  </td>
  <td valign=top style='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' width="93">
  <p align=center style='text-align:center;text-autospace:none'>Increase/</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='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' width="220">
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
  <td valign=top style='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' width="91">
  <p align=center style='text-align:center;text-autospace:none'>2004</p>
  </td>
  <td valign=top style='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' width="98">
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td valign=top style='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' width="93">
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='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' width="219">
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' width="91">
  <p align=center style='text-align:center;text-autospace:none'>12.6%</p>
  </td>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' width="98">
  <p align=center style='text-align:center;text-autospace:none'>2.4%</p>
  </td>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' width="93">
  <p align=center style='text-align:center;text-autospace:none'>10.2%</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='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' width="219">
  <p style='text-autospace:none'><u>Oregon Micro Systems

  </u></p>
  </td>
  <td valign=top style='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' width="91">
  <p align=center style='text-align:center;text-autospace:none'>26.0%</p>
  </td>
  <td valign=top style='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' width="98">
  <p align=center style='text-align:center;text-autospace:none'>27.3%</p>
  </td>
  <td valign=top style='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' width="93">
  <p align=center style='text-align:center;text-autospace:none'>(1.3%)</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt' width="219">
  <p style='text-autospace:none'>Weighted Average (with
  Corporate)</p>
  </td>
  <td valign=top style='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' width="91">
  <p align=center style='text-align:center;text-autospace:none'>12.1%</p>
  </td>
  <td valign=top style='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' width="98">
  <p align=center style='text-align:center;text-autospace:none'>3.4%</p>
  </td>
  <td valign=top style='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' width="93">
  <p align=center style='text-align:center;text-autospace:none'>8.7%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>&nbsp; Royalties
and Other Income (Expense). </b>&nbsp;The Company received $40,000 in royalty
payments in the three months ended March 31, 2004, compared to none in the
prior year's quarter. </p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>&nbsp; Net
Interest Expense. </b>&nbsp;Net interest expense was $9,000 in the quarter ended March
31, 2004, down from $21,000 in the prior year's quarter due to reduced balance
and rates on the restructured credit line. </p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>&nbsp; Provision
for Taxes</b>. The Company's effective tax rate on income from operations was
40% for the quarters ended March 31, 2004, and 2003. </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Net Income.</b>&nbsp; The Company's net income for the three months ended
March 31, 2004 was $261,000 or $0.03 per share on a basic and $0.03 per share
on a diluted basis, as compared to a net income of $56,000 or $0.01 per share
on a basic and diluted basis for the three months ended March 31, 2003.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>

<p style='text-autospace:none'><b>For the Nine Month periods
ended March 31, 2004 and 2003</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. </p>

<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='margin-left:9.9pt;border-collapse:collapse;border:none;border-collapse:
 collapse !msorm;border:none !msorm'>
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td width=384 rowspan=2 valign=top style='width:4.0in;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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border-top:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>Nine Months Ended March
  31,</p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid' style='page-break-inside:avoid !msorm'>
  <td width=120 valign=top style='width:1.25in;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>2004</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 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p align=center style='text-align:center'>2003</p>
  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;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;
  border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;border-bottom:
  none !msorm;border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Net Revenues: </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>&nbsp;100.0%&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>&nbsp;100.0%&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;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;
  border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;border-bottom:
  none !msorm;border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Cost of Goods Sold </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>&nbsp;54.0&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>&nbsp;58.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;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;
  border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;border-bottom:
  none !msorm;border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Gross Profit </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>46.0&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>41.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;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;
  border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;border-bottom:
  none !msorm;border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">

  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">

  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;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;
  border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;border-bottom:
  none !msorm;border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Selling, General and
  Administrative Expenses </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>23.0&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>27.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;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;
  border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;border-bottom:
  none !msorm;border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Research and Development Costs </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>12.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>12.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;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;
  border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;border-bottom:
  none !msorm;border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Amortization</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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>--&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-5.4pt'>0.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;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;
  border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;border-bottom:
  none !msorm;border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Income from Operations </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>10.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;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;
  border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;border-bottom:
  none !msorm;border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">

  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">

  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;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;
  border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;border-bottom:
  none !msorm;border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Net interest and other expense (income)</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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>(0.1)&nbsp;&nbsp;&nbsp;&nbsp;&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 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>&nbsp;0.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;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;
  border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;border-bottom:
  none !msorm;border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>

  </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;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">

  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">

  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;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;
  border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;border-bottom:
  none !msorm;border-right:solid windowtext 1.0pt !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Provision for Income Taxes </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>4.3 &nbsp;&nbsp;&nbsp;&nbsp;&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 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:-.05in'>0.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=384 valign=top style='width:4.0in;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 5.4pt 0in 5.4pt !msorm'>
  <p>Net Income</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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:.9pt'><u>6.5% &nbsp;</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 5.4pt 0in 5.4pt;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 5.4pt 0in 5.4pt !msorm' align="right">
  <p style='margin-right:.9pt'><u>0.2%&nbsp;&nbsp;&nbsp;</u></p>
  </td>
 </tr>
</table>

</div>







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







<p style='text-align:center;text-autospace:none'>18</p>



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

</p>







<p style='text-align:justify;text-autospace:none; text-indent:0.5in'>
<b>Net Sales.</b>&nbsp; Consolidated sales increased 21% for the nine months ended
March 31, 2004, compared to the nine months ended March 31, 2003 due to
increased sales at both Micro Motors and OMS. At Micro Motors, sales increased 24%
for the nine months ended March 31, 2004 compared to the nine months ended
March 31, 2003 due to increased volume of medical product shipments which rose 177%
compared to the previous year's same nine month period.&nbsp; The increase in
medical sales more than offsets the 60% decline of development fees, as
development contracts transitioned into production contracts, and the 24%
decrease in sales to industrial customers.&nbsp; Shipments to dental customers also decreased
6% as the Healozone product offering transitioned to a royalty payment stream.&nbsp;
Revenue at OMS increased 12% for the nine months ended March 31, 2004 compared
to the previous year's same nine month period as sales to customers inside and
outside the semiconductor industry regained strength.&nbsp; Although selective price
changes were implemented throughout the period at both OMS and Micro Motors,
the majority of the sales growth is due to higher volumes.&nbsp; Net sales by
subsidiary and type of customer were as follows: </p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=528
 style='width:396.25pt;margin-left:-.25pt;border-collapse:collapse;border-collapse:
 collapse !msorm'>
 <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:solid windowtext 1.0pt !msorm;border-right:none !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>Nine
  Months Ended March 31,<br>
  2004&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2003</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in;border:solid windowtext 1.0pt !msorm;
  border-left:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Dental</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>$</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>3,557,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>$</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>3,766,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>(6%)</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Medical </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>3,615,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,304,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>177%</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Industrial</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>413,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>547,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>(24%)</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Development</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>299,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>756,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>(60%)</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>&nbsp;&nbsp; Repair &amp; Other</u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>432,000</u></p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>333,000</u></p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'><u>30%</u></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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>8,316,000 </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>6,706,000 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>24%</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  &nbsp;</td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

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

  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

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

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

  </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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Semiconductor</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,042,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>966,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.6pt;text-align:center;
  text-autospace:none'>7%</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>&nbsp;&nbsp; Medical </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>488,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>375,000</p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.6pt;text-align:center;
  text-autospace:none'>30%</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'><u>&nbsp;&nbsp; Other</u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>688,000</u></p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>631,000</u></p>
  </td>
  <td width=96 valign=top style='width:1.0in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.6pt;text-align:center;
  text-autospace:none'><u>9%</u></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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <p style='text-autospace:none'>Oregon Micro Systems </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>2,218,000 </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>1,972,000 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.6pt;text-align:center;
  text-autospace:none'>12%</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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>10,534,000 </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>8,678,000 </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.6pt;text-align:center;
  text-autospace:none'>21%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>Gross Profit &amp; Margin</b>.&nbsp; The Company's consolidated gross profit for
the nine months ended March 31, 2004 increased 35% over the same nine months in
the previous year due to increased sales, a more profitable sales mix, and
margin improvements at both operating subsidiaries.&nbsp; Gross profit as a
percentage of sales increased to 46% for the nine months ended March 31, 2004 compared
to 41% for the nine months ended March 31, 2003 as the continued gains from
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 32% of sales in 2003 to 38% of sales in 2004 due to
the richer product mix favoring medical products.&nbsp; Gross Profit at OMS
increased from 72% of sales in 2003 to 74% of sales in 2004 due to higher sales
volume and a flat cost base.&nbsp; Gross profit and margin by subsidiary were as follows:
</p>

<p style='text-align:justify;text-indent:.5in'><b>Gross Profit</b></p>

<div align=center>

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

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

  </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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>Nine
  Months Ended March 31,</p>
  </td>
  <td width=114 valign=top style='width:85.75pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

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

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>2004</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td width=114 valign=top style='width:85.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>3,207,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>2,174,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=114 valign=top style='width:85.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:6.85pt;text-align:center;
  text-autospace:none'>48%</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>1,644,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>1,414,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=114 valign=top style='width:85.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:6.85pt;text-align:center;
  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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>4,851,000&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;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>3,588,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=114 valign=top style='width:85.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:6.85pt;text-align:center;
  text-autospace:none'>35%</p>
  </td>
 </tr>
</table>

</div>



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

<div align=center>

<table class=MsoTableGrid border=1 cellspacing=0 cellpadding=0
 style='border-collapse:collapse;border:none'>
 <tr>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
  <td colspan=2 valign=top style='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 style='text-autospace:none'>Nine Months Ended March 31,</p>
  </td>
  <td valign=top style='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 valign=top style='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 style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
  <td valign=top style='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;text-autospace:none'>2004</p>
  </td>
  <td valign=top style='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;text-autospace:none'>2003</p>
  </td>
  <td valign=top style='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;text-autospace:none'>Increase</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='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'>Micro Motors </p>
  </td>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>38.5%</p>
  </td>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>32.4%</p>
  </td>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>6.1%</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='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'><u>Oregon Micro Systems

  </u></p>
  </td>
  <td valign=top style='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;text-autospace:none'>74.1%</p>
  </td>
  <td valign=top style='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;text-autospace:none'>71.7%</p>
  </td>
  <td valign=top style='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;text-autospace:none'>2.4%</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt'>
  <p style='text-autospace:none'>Weighted Average</p>
  </td>
  <td valign=top style='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;text-autospace:none'>46.0%</p>
  </td>
  <td valign=top style='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;text-autospace:none'>41.3%</p>
  </td>
  <td valign=top style='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;text-autospace:none'>4.7%</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'>19</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'><b>Selling,
General and Administrative Costs (S, G&amp;A)</b>.&nbsp; S, G &amp; A expenses were nearly
flat at $2,425,000 for the nine months ended March 31, 2004 compared to $2,421,000
for the nine months ended March 31, 2003.&nbsp; Increased subsidiary sales and
marketing expenses were offset by cost saving measures implemented at the
corporate level in management staff expenses in addition to $32,000 of reduced
amortization costs at OMS.&nbsp; S, G &amp; A costs by subsidiary were as follows: </p>



<div align=center>

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

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

  </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;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>Nine
  Months Ended March 31,</p>
  </td>
  <td width=114 valign=top style='width:85.75pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:solid windowtext 1.0pt !msorm;border-left:
  none !msorm;border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

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

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>2004</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td width=114 valign=top style='width:85.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>1,313,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>1,223,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=114 valign=top style='width:85.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>7%</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>512,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>519,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=114 valign=top style='width:85.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>(1%)</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;border-top:none !msorm;border-left:solid windowtext 1.0pt !msorm;
  border-bottom:none !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>600,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in;
  border:none !msorm;padding:0in 0in 0in 0in !msorm'>

  </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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>679,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=114 valign=top style='width:85.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>(12%)</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;border:solid windowtext 1.0pt !msorm;
  border-top:none !msorm;padding:0in 0in 0in 0in !msorm'>
  <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;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>2,425,000&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;border:none !msorm;border-bottom:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <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;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=right style='text-align:right;text-autospace:none'>2,421,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=114 valign=top style='width:85.75pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in;border-top:none !msorm;border-left:none !msorm;
  border-bottom:solid windowtext 1.0pt !msorm;border-right:solid windowtext 1.0pt !msorm;
  padding:0in 0in 0in 0in !msorm'>
  <p align=center style='margin-right:2.35pt;text-align:center;
  text-autospace:none'>0%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Research and
Development Costs</b>.&nbsp; Research and development expenses increased 21% to
$1,229,000 for the nine months ended March 31, 2004 from $1,071,000 for the nine
months ended March 31, 2003.&nbsp; The increase is due to increased Company funded
research and development at Micro Motors in support of the growing medical
product line and at OMS to support MAX system product line extensions.&nbsp; The MAX
system is a next generation motion control product that became available for
sale in the latter part of fiscal 2003.</p>



<p style='text-align:justify'>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 multi axis motion control 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'>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' width="550">
 <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'>Nine
  Months Ended March 31,</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'>

  </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'>2004</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'>2003</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'>Increase</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>Micro Motors </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;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'>789,000&nbsp;&nbsp; </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;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'>565,000&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=center style='text-align:center'>40%</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><u>Oregon Micro Systems  </u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;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='text-align:right'>510,000&nbsp;&nbsp; </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;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'>506,000&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=center style='text-align:center'>&nbsp;1%</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>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>$ </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'>1,299,000&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'>$ </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'>1,071,000&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=center style='text-align:center'>21%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify'>&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 as inventory and recognized as costs of goods
sold when the contracted deliverable is made. </p>



<p style='text-align:justify;text-indent:.5in'><b>Operating
Profit &amp; Margin</b>.&nbsp; The Company's consolidated operating profit for
the nine months ended March 31, 2004 increased to $1,127,000 compared to the
same period in the previous year's operating profit of $96,000 due to the
increased sales and margin improvements and controlled expenses at both
operating subsidiaries. Operating profit as a percentage of sales increased to 12.1%
for the nine months ended March 31, 2004 compared to 3.4% for the nine months
ended March 31, 2003.&nbsp; Operating Profit at Micro Motors increased from 5.8%
of sales in 2003 to 13.3% of sales in 2004 due to the increased sales volumes
and richer product mix favoring medical products.&nbsp; Operating Profit at OMS
increased from 19.7% of sales in 2003 to 28.0% of sales in 2004 due to higher
sales volume, no amortization and a flat cost base.&nbsp; Operating profit and
margin by subsidiary were as follows: </p>



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



<p style='text-align:center;'>20</p>



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

</p>



<p style='text-indent:.5in;text-autospace:none'><b>Operating Profit</b></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'>Nine
  Months Ended March 31,</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'>

  </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'>2004</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'>2003</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'>Increase </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-align:justify'>Micro Motors </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;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>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,105,000&nbsp;&nbsp; </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;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'>386,000&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=center style='text-align:center'>186%</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-align:justify'>Oregon Micro Systems </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;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=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 621,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;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'>389,000&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=center style='text-align:center'>60%</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-align:justify'><u>Corporate </u></p>
  </td>
  <td width=12 valign=top style='width:9.0pt;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='text-align:right'>(599,000)&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;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'>(679,000)&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=center style='text-align:center'>12%</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-align:justify'>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 style='text-align:justify'>$ </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>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,127,000&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'>$ </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'>96,000&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=center style='text-align:center'>1073%</p>
  </td>
 </tr>
</table>

</div>

<p style='text-indent:.5in;text-autospace:none'><b>Operating
Margin</b></p>

<div align=center>

<table class=MsoTableGrid border=1 cellspacing=0 cellpadding=0
 style='border-collapse:collapse;border:none' width="546">
 <tr>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' width="220">
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
  <td colspan=2 valign=top style='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' width="196">
  <p style='text-autospace:none'>Three Months Ended March 31,</p>
  </td>
  <td valign=top style='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' width="85">

  </td>
 </tr>
 <tr>
  <td valign=top style='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' width="220">
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
  <td valign=top style='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' width="91">
  <p align=center style='text-align:center;text-autospace:none'>2004</p>
  </td>
  <td valign=top style='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' width="90">
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td valign=top style='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' width="85">
  <p align=center style='text-align:center;text-autospace:none'>Increase
  </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='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' width="219">
  <p style='text-autospace:none'>Micro Motors </p>
  </td>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' width="91">
  <p align=center style='text-align:center;text-autospace:none'>13.3%</p>
  </td>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' width="90">
  <p align=center style='text-align:center;text-autospace:none'>5.8%</p>
  </td>
  <td valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' width="85">
  <p align=center style='text-align:center;text-autospace:none'>7.5%</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='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' width="219">
  <p style='text-autospace:none'><u>Oregon Micro Systems

  </u></p>
  </td>
  <td valign=top style='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' width="91">
  <p align=center style='text-align:center;text-autospace:none'>28.0%</p>
  </td>
  <td valign=top style='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' width="90">
  <p align=center style='text-align:center;text-autospace:none'>19.7%</p>
  </td>
  <td valign=top style='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' width="85">
  <p align=center style='text-align:center;text-autospace:none'>8.3%</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt' width="219">
  <p style='text-autospace:none'>Weighted Average (with
  Corporate)</p>
  </td>
  <td valign=top style='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' width="91">
  <p align=center style='text-align:center;text-autospace:none'>10.7%</p>
  </td>
  <td valign=top style='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' width="90">
  <p align=center style='text-align:center;text-autospace:none'>0.9%</p>
  </td>
  <td valign=top style='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' width="85">
  <p align=center style='text-align:center;text-autospace:none'>8.7%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;<b>Royalties
and Other Income (Expense). </b>&nbsp;The Company received $40,000 in royalty
payments in the nine months ended March 31, 2004, compared to none in the prior
year's nine month period. </p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b> Net
Interest Expense. </b>&nbsp;Net interest expense was $44,000 in the nine months
ended March 31, 2004, down from $65,000 in the prior year's quarter due to
reduced balance and rates on the restructured credit line. </p>



<p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>&nbsp; Provision
for Taxes</b>. The Company's effective tax rate on income from operations was
40% for the nine months ended March 31, 2004, and 2003. </p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Net Income.&nbsp; </b>The Company's net income for the nine months ended
March 31, 2004 was $683,000 or $0.08 per share on a basic and $0.07 per share
on a diluted basis, as compared to a net income of $21,000 or $0.00 per share
on a basic and $0.00 per share on a diluted basis for the nine months ended
March 31, 2003.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Liquidity and Capital Resources </b></p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The following table presents selected financial statistics and
information for the comparative nine months last year and the last quarter:</p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=678
 style='width:508.5pt;margin-left:27.9pt;border-collapse:collapse'>
 <tr style='page-break-inside:avoid'>
  <td width=328 valign=top style='width:245.95pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><i>&nbsp;</i></p>
  </td>
  <td width=241 colspan=2 valign=top style='width:180.7pt;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'>Nine Months Ended March
  31,</p>
  </td>
  <td width=109 valign=top style='width:81.85pt;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=328 valign=top style='width:245.95pt;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=120 valign=top style='width:90.35pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>2004</p>
  </td>
  <td width=120 valign=top style='width:90.35pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>2003</p>
  </td>
  <td width=109 valign=top style='width:81.85pt;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=328 valign=top style='width:245.95pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Cash and cash equivalents </p>
  </td>
  <td width=120 valign=top style='width:90.35pt;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=right style='text-align:right'>$1,306,000&nbsp;</p>
  </td>
  <td width=120 valign=top style='width:90.35pt;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=right style='text-align:right'>$324,000&nbsp;</p>
  </td>
  <td width=109 valign=top style='width:81.85pt;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=328 valign=top style='width:245.95pt;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=120 valign=top style='width:90.35pt;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:right'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $1,160,000&nbsp;</p>
  </td>
  <td width=120 valign=top style='width:90.35pt;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=right style='text-align:right'>($300,000)</p>
  </td>
  <td width=109 valign=top style='width:81.85pt;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=328 valign=top style='width:245.95pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Working Capital<sup>1</sup></p>
  </td>
  <td width=120 valign=top style='width:90.35pt;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=right style='text-align:right'>$5,353,000&nbsp;</p>
  </td>
  <td width=120 valign=top style='width:90.35pt;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=right style='text-align:right'>$4,000,000&nbsp;</p>
  </td>
  <td width=109 valign=top style='width:81.85pt;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=328 valign=top style='width:245.95pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Credit Line outstanding balance </p>
  </td>
  <td width=120 valign=top style='width:90.35pt;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=right style='text-align:right'>$0&nbsp;</p>
  </td>
  <td width=120 valign=top style='width:90.35pt;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=right style='text-align:right'>$627,000&nbsp;</p>
  </td>
  <td width=109 valign=top style='width:81.85pt;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=328 valign=top style='width:245.95pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Tangible book value/common share<sup>2</sup></p>
  </td>
  <td width=120 valign=top style='width:90.35pt;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'>$0.81</p>
  </td>
  <td width=120 valign=top style='width:90.35pt;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>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;$0.70</p>
  </td>
  <td width=109 valign=top style='width:81.85pt;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; $0.72</p>
  </td>
 </tr>
 <tr>
  <td width=328 valign=bottom style='width:245.95pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Number of days of sales outstanding (DSO) &nbsp;in accounts
  receivable at end of quarter<sup>3</sup></p>
  </td>
  <td width=120 valign=bottom style='width:90.35pt;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'>52</p>
  </td>
  <td width=120 valign=bottom style='width:90.35pt;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'>63</p>
  </td>
  <td width=109 valign=bottom style='width:81.85pt;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-indent:.5in;text-autospace:
none'><sup>1</sup> Working Capital = Ending Current Assets balance - Ending
Current liabilities balance</p>



<p style='margin-left:.5in;text-align:justify;text-autospace:
none'><sup>2</sup> Tangible book value/common share<sup> </sup>= (Total
shareholders' equity - Goodwill)/(basic outstanding shares)</p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><sup>3</sup> DSO = Ending Net Accounts Receivable balance/(Previous
Quarter Sales/91)</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'>21</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'>The Company's working capital at March 31, 2004 increased to $5.4 million
compared to $4.0 million at March 31, 2003 and $4.6 million at June 30, 2003.&nbsp; Cash
Flow provided by (used from) Operations was $1,160,000 in the nine months ended
March 31, 2004 compared to ($300,000) for the nine months ended March 31, 2003.&nbsp;
Sustained profitability and reduced inventory, coupled with a growth in
accounts receivable consistent with higher sales level, contributed to the
provision of cash and increased working capital for the year.&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'>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 were to expire May 2005 and required monthly interest payments at the
prime rate (4.00% at March 31, 2004) plus 1.00% to 1.75% based on outstanding
borrowings, with a minimum interest charge of $12,500 per quarter.&nbsp; The
outstanding borrowings were secured by all assets of the Company's two
subsidiaries, Micro Motors and OMS, and were guaranteed by the Company.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>In October 2003,
the credit facility with WFBCI was ended and refinanced with a more favorable
facility 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 nine months ended March 31, 2004)
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.&nbsp; There was no outstanding balance under the terms of this credit
facility as of March 31, 2004.&nbsp; The total additional eligible borrowing
capacity based on the receivables balances at March 31, 2004 was $1,199,000.</p>



<p style='text-align:justify;text-indent:.5in'>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; At March 31, 2004 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 nine months ended March 31, 2004.</p>



<p style='text-align:justify;text-indent:.5in'>At March 31,
2004, the Company had cash and cash equivalents of $1,306,000.&nbsp; The
Company believes that its cash and cash equivalents on hand, 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 March 31, 2004 (&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-align:justify;text-indent:.5in'>&nbsp;</p>



<p style='text-align:center;'>22</p>



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

</p>



<p style='text-align:justify;text-indent:.5in'>During the
quarter ended March 31, 2004, there were no changes in the Company's internal
controls over financial reporting (as defined in Rule 13a-15(f) and 15d-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-indent:.5in'>&nbsp;</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:justify;text-indent:.5in'>&nbsp;</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:justify;text-indent:.5in'>&nbsp;</p>



<p style='text-align:center;'>23</p>



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

</p>



<P align="left">
<B><FONT face="serif">PART II</FONT></B><FONT face="serif"> </FONT>
</P>
<P align="center">
<B><FONT face="serif">OTHER INFORMATION</FONT></B>
</P>
<P>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><FONT face="serif">Item 1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Legal Proceedings</FONT></B>
</P>
<P style="text-indent: 0.5in" align="justify">
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>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Item 2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Changes in Securities and Small Business Issuer Purchases of Equity Securities. </B>
</P>
<P style="text-indent: 0.5in" align="justify">
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&#146;s outstanding Common Stock, subject to
compliance with applicable laws and regulations. There is no requirement that the Company repurchase all or any portion of such shares. The maximum total value of the repurchase is not to exceed $500,000. The maximum price per share that can be paid
is $1.25. 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. No additional shares were repurchased in the quarter ended March 31, 2004 and no shares have been purchased under the program since June 4, 2003.
</P>

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

<p style='margin-top:.25in;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Item 4. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; None.</p>

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

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

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

<p style='margin-left:2.0in;text-indent:-.5in' align="justify">31.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certifications of Chief Executive officer
and Chief financial Officer 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' align="justify">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='margin-left:.5in;text-indent:.5in'><u>Reports on Form 8-K</u>:<br>
&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; Form 8-K&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Filed February 3, 2004
concerning the announcement of financial <br>
&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; performance for the quarter ended December
31, 2003.</p>



<p>SIGNATURES </p>



<p style='text-indent:.5in'>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 width=613
 style='width:459.75pt;border-collapse:collapse;width:459.75pt !msorm;
 border-collapse:collapse !msorm'>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p>Date:&nbsp; May 11, 2004</p>

  <p>PRO-DEX INC. </p>
  </td>
  <td width=307 valign=top style='width:230.25pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p>Date:&nbsp; May 11, 2004</p>

  <p>PRO-DEX INC. </p>
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p>By: / s / Patrick Johnson </p>
  </td>
  <td width=307 valign=top style='width:230.25pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p>By: / s / Jeffrey J.
  Ritchey </p>
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>

  &nbsp;&nbsp;&nbsp;

  </td>
  <td width=307 valign=top style='width:230.25pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>

  &nbsp;

  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p>Patrick Johnson </p>
  </td>
  <td width=307 valign=top style='width:230.25pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p>Jeffrey J. Ritchey </p>
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p>Chief Executive Officer</p>
  </td>
  <td width=307 valign=top style='width:230.25pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p>Secretary, Treasurer, and</p>
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p>and President (Principal
  Executive Officer)</p>
  </td>
  <td width=307 valign=top style='width:230.25pt;padding:0in 0in 0in 0in 0in 0in 0in 0in !msorm'>
  <p>Chief Financial Officer
  (Principal <br>
  Financial and Accounting Officer)</p>
  </td>
 </tr>
</table>



<p>&nbsp;</p>



<p>&nbsp;</p>



<p align="center">24</p>



</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>ex31-1.htm
<TEXT>
<html>

<head>
<title>EXHIBIT 31</title>
</head>

<body>



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



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



<p class=MsoNormal 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;&nbsp; I have reviewed this Form 10-QSB of
Pro-Dex, Inc.;</font></p>



<p class=MsoNormal 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;&nbsp; Based on my knowledge, this quarterly
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 quarterly report; </font> </p>



<p class=MsoNormal 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;&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 class=MsoNormal 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] for the registrant and have:</font></p>



<p class=MsoNormal 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;&nbsp;Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, 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 class=MsoNormal 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;&nbsp; [Omitted pursuant to SEC
Release 34-47986];</font></p>



<p class=MsoNormal style='margin-left:1.0in;text-align:justify;text-indent:
- -.5in'><font size="2">c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 class=MsoNormal style='margin-left:1.0in;text-align:justify;text-indent:
- -.5in'><font size="2">d) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 class=MsoNormal 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;&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 class=MsoNormal 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;&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 class=MsoNormal 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;&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 class=MsoNormal><font size="2">Date: May 11, 2004&nbsp;&nbsp;&nbsp;</font></p>

<p class=MsoNormal><font size="2">&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;&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;&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>
/s/&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; PATRICK L. JOHNSON</u><br>
&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;&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;&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;&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;&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;&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chief
Executive Officer</font></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>&nbsp;</p>

</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>ex31-2.htm
<TEXT>
<html>

<head>
<title>EXHIBIT 31.2</title>
</head>

<body>



<p class=FlushLeft><b><font size="2">EXHIBIT 31.2</font></b></p>



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



<p class=MsoNormal 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;&nbsp; I have reviewed this Form 10-QSB of
Pro-Dex, Inc.;</font></p>



<p class=MsoNormal 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;&nbsp; Based on my knowledge, this quarterly
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 quarterly report; </font> </p>



<p class=MsoNormal 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;&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 class=MsoNormal 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] for the registrant and have:</font></p>



<p class=MsoNormal 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;&nbsp;Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, 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 class=MsoNormal 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;&nbsp; [Omitted pursuant to SEC
Release 34-47986];</font></p>



<p class=MsoNormal style='margin-left:1.0in;text-align:justify;text-indent:
- -.5in'><font size="2">c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 class=MsoNormal style='margin-left:1.0in;text-align:justify;text-indent:
- -.5in'><font size="2">d) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 class=MsoNormal 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;&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 class=MsoNormal 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;&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 class=MsoNormal 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;&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 class=MsoNormal><font size="2">Date: May 11, 2004&nbsp;&nbsp;&nbsp;</font></p>

<p class=MsoNormal><font size="2">&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;&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;&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>
/s/&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; JEFFREY J. RITCHEY</u><br>
&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;&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;&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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;&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;&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;&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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chief
Financial Officer</font></p>

<p class=MsoNormal>&nbsp;</p>

<p class=MsoNormal>&nbsp;</p>

</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>4
<FILENAME>ex32.htm
<TEXT>
<html>

<head>
<title>EXHIBIT 32</title>
</head>

<body>

<p>&nbsp;</p>




<p><b>EXHIBIT 32</b></p>





<p align=center style='margin-top:0in;text-align:center'><b>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</b></p>

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



<p style='margin-top:0in;text-align:justify; text-indent:0.5in'>In connection with the
quarterly report on Form 10-Q of Pro-Dex Inc. (the &quot;Company&quot;) for the quarterly
period ended March 31, 2004 (the &quot;Report&quot;), the undersigned hereby certify in their
capacities as Chief Executive Officer and Chief Financial Officer of the
Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:</p>

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

<p style='text-align:justify; text-indent:0.5in'>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.</p>



<div align="left">
  <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="750" id="AutoNumber1">
    <tr>
      <td width="323">Dated: May 11, 2004</td>
      <td width="435">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; </u>
      </td>
    </tr>
    <tr>
      <td width="323">&nbsp;</td>
      <td width="435">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Patrick
L. Johnson</td>
    </tr>
    <tr>
      <td width="323">&nbsp;</td>
      <td width="435">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chief
Executive Officer and President<u><br>
</u></td>
    </tr>
    <tr>
      <td width="323">&nbsp;</td>
      <td width="435">&nbsp;</td>
    </tr>
    <tr>
      <td width="323">&nbsp;</td>
      <td width="435">&nbsp; </td>
    </tr>
    <tr>
      <td width="323">Dated: May 11, 2004</td>
      <td width="435">By:<u>
/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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
      </td>
    </tr>
    <tr>
      <td width="323">&nbsp;</td>
      <td width="435">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Jeffrey
J. Ritchey</td>
    </tr>
    <tr>
      <td width="323">&nbsp;</td>
      <td width="435">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chief Financial Officer</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><u><font size="2"><br>
</font>
<br>
</u></p>





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

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</DOCUMENT>
</SEC-DOCUMENT>
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