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<SEC-DOCUMENT>0001003297-04-000451.txt : 20041115
<SEC-HEADER>0001003297-04-000451.hdr.sgml : 20041115
<ACCEPTANCE-DATETIME>20041115124701
ACCESSION NUMBER:		0001003297-04-000451
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20040930
FILED AS OF DATE:		20041115
DATE AS OF CHANGE:		20041115

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PRO DEX INC
		CENTRAL INDEX KEY:			0000788920
		STANDARD INDUSTRIAL CLASSIFICATION:	MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590]
		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:		041143266

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

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

<head>


<title>Pro-Dex Inc. Form 10-QSB by EDGAR2.com </title>



</head>

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















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



  <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 style='text-align:center'><b><font size="5">&nbsp;</font><font size="4">FORM
  10-QSB</font></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>
  <font size="2">For
  the quarterly period ended September 30, 2004</font></b></p>
  <p align=center style='text-align:center'><b>OR</b></p>
  <p style='margin-left:.75in;text-indent:-.75in;text-autospace:
  none'><b>[&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.&nbsp;&nbsp;
  FOR THE TRANSITION PERIOD FROM&nbsp; <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>TO
	<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; .</u></b></p>

<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=721
 style='width:740px;border-collapse:collapse'>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>Commission
  File Number&nbsp;&nbsp;&nbsp; 0-14942 </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>
  <font size="5">PRO-DEX, INC.&nbsp;&nbsp;&nbsp; </font> </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>
  <font size="2">(Exact
  name of small business issuer as specified in its
  charter)&nbsp;&nbsp;&nbsp;&nbsp; </font> </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <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'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <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'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>Colorado </u></b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>84-1261240
  </u></b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <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'>
  <p align=center style='text-align:center;text-autospace:none'><b>(State
  or Other Jurisdiction of&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>(IRS
  Employer Identification No.) </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <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'>
  <p align=center style='text-align:center;text-autospace:none'><b>Incorporation
  or Organization)&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <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'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <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'>
  <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'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:7.5in;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>(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'>
  <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'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=360 valign=top style='width:3.75in;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; &nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <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'>
  <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'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
</table>





</div>





<p style='text-align:justify;text-autospace:none'><font size="2">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 [ ]
</font> </p>



<p style='text-autospace:none'><font size="2">Indicate
the number of shares outstanding of each of the Registrant's classes of Common
Stock outstanding as of the latest practicable date:&nbsp; 8,995,593 shares of
Common Stock, no par value, as of November 1, 2004. </font> </p>



<p style='text-autospace:none'><font size="2">Transitional
Small Business Disclosure Format:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Yes [&nbsp; ] No [X]</font></p>
<p style='text-autospace:none'>&nbsp;</p>
<p style='text-autospace:none' align="center">-1-</p>



<div class=MsoNormal align=center style='text-align:center'>

<hr size=2 width="100%" noshade color=navy align=center>

</div>



<br clear=all
style='page-break-before:always'>




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

<div align="left">

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=824
 style='width:740;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td colspan=11 valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b><font size="2">PRO-DEX, INC.
  and SUBSIDIARIES</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=11 valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b><font size="2">CONSOLIDATED
  BALANCE SHEETS</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width=356 nowrap valign=bottom style='width:266.65pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p class=MsoNormal align=center style='text-align:center'><b><font size="2">&nbsp;</font></b></p>
  </td>
  <td width=129 nowrap colspan=5 valign=bottom style='width:97.05pt;padding:
  0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td width=128 nowrap colspan=5 valign=bottom style='width:96.2pt;padding:
  0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:29.25pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;padding:0in 5.4pt 0in 5.4pt;
  height:29.25pt'>

  </td>
  <td colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-right:medium none; height:29.25pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><i><font size="2">September 30,2004<br>
&nbsp;(unaudited)</font></i></p>
  </td>
  <td colspan=5 valign=top style='border:1.0pt solid windowtext;
  height:29.25pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><i><font size="2">June 30,2004
	<br>
	(audited)</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p class=MsoNormal><b><font size="2">ASSETS</font></b></p>
  </td>
  <td width=129 nowrap colspan=5 valign=top style='width:97.05pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

  </td>
  <td width=128 nowrap colspan=5 valign=top style='width:96.2pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Current assets:</font></p>
  </td>
  <td width=129 nowrap colspan=5 valign=top style='width:97.05pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

  </td>
  <td width=128 nowrap colspan=5 valign=top style='width:96.2pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Cash and cash equivalents </font> </p>
  </td>
  <td colspan=4 valign=top style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">2,097,000&nbsp;</font></p>
  </td>
  <td colspan=4 valign=top style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">2,070,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Accounts receivable, net of allowance for doubtful </font> </p>
  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  accounts of $45,000 at Sept. 30 and $40,000 at June 30</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">2,086,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">2,370,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Inventories,
  net </font> </p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">2,885,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">2,542,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Prepaid expenses </font> </p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">266,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">76,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Deferred income taxes</font></p>
  </td>
  <td colspan=5 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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">793,000&nbsp;</font></p>
  </td>
  <td colspan=5 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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">793,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total current
  assets </font> </p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">8,127,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">7,851,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Equipment and leasehold
  improvements, net&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </font> </p>
  </td>
  <td colspan=5 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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">994,000&nbsp;</font></p>
  </td>
  <td colspan=5 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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,030,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Other assets:</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Goodwill</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,110,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,110,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Deferred income taxes</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">788,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">788,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Other </font> </p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">46,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">16,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total other assets
  </font>
  </p>
  </td>
  <td colspan=5 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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,944,000&nbsp;</font></p>
  </td>
  <td colspan=5 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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,914,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>

  </td>
  <td colspan=5 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'>

  </td>
  <td colspan=5 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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Total assets</font></p>
  </td>
  <td colspan=3 valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=2 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">11,065,000&nbsp;</font></p>
  </td>
  <td colspan=3 valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=2 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">10,795,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=bottom style='width:266.65pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><b><font size="2">LIABILITIES AND
  SHAREHOLDERS' EQUITY</font></b></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Current liabilities:</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Current portion of
  long term debt to shareholder</font></p>
  </td>
  <td colspan=2 valign=top style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=3 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">71,000&nbsp;</font></p>
  </td>
  <td colspan=2 valign=top style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=3 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">70,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accounts payable</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">545,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">397,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accrued expenses</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">401,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">780,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Income taxes payable
  </font> </p>
  </td>
  <td colspan=5 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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">786,000&nbsp;</font></p>
  </td>
  <td colspan=5 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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">809,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total current
  liabilities </font> </p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,803,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">2,056,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Long-term debt to a
  shareholder, net of current portion</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">57,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">75,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Total liabilities</font></p>
  </td>
  <td colspan=5 valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,860,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">2,131,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Commitments and
  contingencies </font> </p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Shareholders' equity:</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Series A convertible
  preferred shares; no par value; liquidation</font></p>
  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; preference of
  $3.60 per share; 10,000,000 shares authorized;</font></p>
  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 78,129 shares
  issued and outstanding</font></p>
  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">283,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">283,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Common shares; no par
  value; 50,000,000 shares authorized;</font></p>
  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,858,600 shares
  issued and outstanding,</font></p>
  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">15,148,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">15,075,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accumulated deficit
  </font> </p>
  </td>
  <td colspan=5 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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(6,207,000)</font></p>
  </td>
  <td colspan=5 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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(6,669,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">9,224,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">8,689,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:9.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:9.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Receivable for stock
  purchase </font> </p>
  </td>
  <td colspan=5 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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(19,000)</font></p>
  </td>
  <td colspan=5 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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(25,000)</font></p>
  </td>
 </tr>
 <tr style='height:9.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:9.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total shareholders'
  equity</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">9,205,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top: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'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">8,664,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:9.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:9.75pt'>

  </td>
  <td colspan=5 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'>

  </td>
  <td colspan=5 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'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:double windowtext 2.25pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities and
  shareholders' equity</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:2.25pt double windowtext;
  border-right:medium none;padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=4 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">11,065,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=4 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">10,795,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=356 nowrap valign=top style='width:266.65pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>

  </td>
  <td width=129 nowrap colspan=5 valign=top style='width:97.05pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>

  </td>
  <td width=128 nowrap colspan=5 valign=top style='width:96.2pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>

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

</div>

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

<p align=center style='text-align:center'><i>See notes to consolidated financial statements.</i></p>
<p align=center style='text-align:center'>&nbsp;</p>
<p align=center style='text-align:center'>-2-</p>

<div class=MsoNormal align=center style='text-align:center'>

<hr size=2 width="100%" noshade color=navy align=center>

</div>

<p align=center style='text-align:center;line-height:1.0pt'><i>&nbsp;</i></p>

<i><br clear=all
style='page-break-before:always'>
</i>

<div align="left">















<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='width:740;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width=726 colspan=11 valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b><font size="2">PRO-DEX, INC.
  and SUBSIDIARIES</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width=726 colspan=11 valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b><font size="2">CONSOLIDATED
  STATEMENTS OF OPERATIONS</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width=726 colspan=11 valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b><font size="2">Three months
  ended September 30 (unaudited)</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='width:406;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td nowrap colspan=10 valign=top style='width:344;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=center style='text-align:center'><i><font size="2">&nbsp;</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='width:405;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td nowrap colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-right:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><i><font size="2">2004</font></i></p>
  </td>
  <td nowrap colspan=5 valign=top style='border:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><i><font size="2">2003</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='width:404;border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td nowrap colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:180;border-left:1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td nowrap colspan=5 valign=top style='width:157;border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Net sales </font> </p>
  </td>
  <td colspan=4 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="22">
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td valign=top style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="144">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">3,332,000&nbsp;</font></p>
  </td>
  <td colspan=4 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="21">
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="122">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">3,528,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">

  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Cost of sales </font> </p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,472,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,987,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Gross profit </font> </p>
  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,860,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,541,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">

  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Operating expenses: </font> </p>
  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">

  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Selling </font> </p>
  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">200,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">205,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; General and
  administrative expenses </font> </p>
  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">544,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">614,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Research and
  development costs </font> </p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">418,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">387,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Total operating expenses </font> </p>
  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,162,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">1,206,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">

  </td>
  <td colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Income from operations </font> </p>
  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">698,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">335,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">

  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Other income (expense): </font> </p>
  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">

  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Other income, net
  </font> </p>
  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">39,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">6,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Royalty income
  </font> </p>
  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">40,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">-&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Interest expense
  </font> </p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(7,000)</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(19,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Total</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">72,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(13,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">

  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Income before provision for
  income taxes</font></p>
  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">770,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">322,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">

  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">

  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:13.5pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Provision for income taxes</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;height:13.5pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">308,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; height:13.5pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">129,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Net income</font></p>
  </td>
  <td colspan=3 valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:2.25pt double windowtext;
  border-right:medium none;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="22">
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="145">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">462,000&nbsp;</font></p>
  </td>
  <td colspan=3 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:2.25pt double windowtext;
  border-right:medium none;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="20">
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=2 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="123">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">193,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:
  1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </font> </p>
  </td>
  <td colspan=5 valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">

  </td>
  <td colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Net Income per share:</font></p>
  </td>
  <td colspan=5 valign=top style='border:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">

  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Basic</font></p>
  </td>
  <td colspan=2 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="22">
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=3 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="144">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">0.05&nbsp;</font></p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="19">
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=3 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="124">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">0.02&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Diluted</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="22">
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=4 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="144">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">0.05&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="19">
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=4 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="124">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">0.02&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">

  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:404;border-left:1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Weighted average shares
  outstanding - basic</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">8,863,902&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">8,776,600&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='width:404;border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">Weighted average shares
  outstanding - diluted</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="180">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">9,470,127&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' width="157">
  <p class=MsoNormal align=right style='text-align:right'><font size="2">9,413,505&nbsp;</font></p>
  </td>
 </tr>
 </table>



















</div>

<p align=center style='text-align:center;line-height:1.0pt'><i>&nbsp;</i></p>











<p align=center style='text-align:center'><i>See notes to consolidated financial statements.</i></p>
<p align=center style='text-align:center'>-3-</p>



<div class=MsoNormal align=center style='text-align:center'>

<hr size=2 width="100%" noshade color=navy align=center>

</div>



<br clear=all
style='page-break-before:always'>










<div align="left">



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=960
 style='width:740;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td colspan=11 valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b><font size="2">PRO-DEX, INC. and SUBSIDIARIES</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=11 valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b><font size="2">CONSOLIDATED STATEMENTS OF CASH FLOWS</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=11 valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b><font size="2">Three months ended September 30 (unaudited)</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>

  </td>
  <td width=101 nowrap colspan=5 valign=bottom style='width:76.0pt;padding:
  0in 5.4pt 0in 5.4pt;height:12.75pt'>

  </td>
  <td width=104 nowrap colspan=5 valign=bottom style='width:78.2pt;padding:
  0in 5.4pt 0in 5.4pt;height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-right:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><i><font size="2">2004</font></i></p>
  </td>
  <td colspan=5 valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="center">
  <p class=MsoNormal align=center style='text-align:center'><i><font size="2">2003</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">Cash Flows from Operating
  Activities: </font> </p>
  </td>
  <td width=101 nowrap colspan=5 valign=top style='width:76.0pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

  </td>
  <td width=104 nowrap colspan=5 valign=top style='width:78.2pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Net Income</font></p>
  </td>
  <td colspan=4 valign=top style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">462,000&nbsp;</font></p>
  </td>
  <td colspan=4 valign=top style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">193,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Adjustments to
  reconcile net income to net cash used in operating activities:</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Depreciation and
  amortization </font> </p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">84,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">90,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Provision for
  doubtful accounts</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">5,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">20,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Recovery)
  reserve for obsolete inventory</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">29,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(122,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stock based
  compensation</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">6,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">6,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred taxes</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">-&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">20,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Changes in:</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (Increase) decrease in accounts receivable</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">278,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(651,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Increase
  in inventories</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(372,000)</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(110,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Increase
  in prepaid expenses</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(190,000)</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(12,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (Increase) decrease in other assets</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(30,000)</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">9,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Increase
  (decrease) in accounts payable and accrued expenses</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(232,000)</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">34,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Increase
  (decrease) in income taxes payable</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(22,000)</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">129,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Net Cash provided by (used
  in) Operating Activities </font> </p>
  </td>
  <td colspan=5 valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">18,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(394,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Cash Flows From Investing
  Activities: </font> </p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Purchases of equipment
  and leasehold improvements</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(47,000)</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(90,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Net Cash used in Investing
  Activities </font> </p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(47,000)</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(90,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Cash Flows from Financing
  Activities:</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Principal payments on long-term shareholder borrowings </font> </p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(17,000)</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(22,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Net
  borrowings on line of credit </font> </p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">-&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">284,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Proceeds from option and warrant exercise </font> </p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">73,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">35,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Net Cash provided by
  Financing Activities</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">56,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">297,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Net Increase (decrease) in
  Cash and Cash Equivalents </font> </p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">27,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">(187,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>
  <p class=MsoNormal><font size="2">Cash and Cash Equivalents,
  beginning of period </font> </p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">2,070,000&nbsp;</font></p>
  </td>
  <td colspan=5 valign=top style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">795,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:12.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  &nbsp;</td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  &nbsp;</td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">Cash and Cash Equivalents,
  end of period </font> </p>
  </td>
  <td colspan=3 valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=2 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">2,097,000&nbsp;</font></p>
  </td>
  <td colspan=3 valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=2 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">608,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>

  </td>
  <td colspan=5 valign=top style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=634 nowrap colspan=11 valign=bottom style='width:475.35pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=right style='text-align:right'><i><font size="2">&nbsp;</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=bottom style='width:321.15pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>

  </td>
  <td colspan=5 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">Cash payments for interest</font></p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=3 valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">7,000&nbsp;</font></p>
  </td>
  <td colspan=2 valign=top style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=3 valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">21,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:9.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border-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:9.75pt'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:9.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:9.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=top style='width:321.15pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">Cash payments for income
  taxes </font> </p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=4 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">331,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal><font size="2">&nbsp;$</font></p>
  </td>
  <td colspan=4 valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p class=MsoNormal align=right style='text-align:right'><font size="2">4,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=bottom style='width:321.15pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>
  <p class=MsoNormal><i><font size="2">&nbsp;</font></i></p>
  </td>
  <td colspan=5 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=5 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=428 nowrap valign=bottom style='width:321.15pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>

  </td>
  <td width=101 nowrap colspan=5 valign=bottom style='width:76.0pt;padding:
  0in 5.4pt 0in 5.4pt;height:12.75pt'>

  </td>
  <td width=104 nowrap colspan=5 valign=bottom style='width:78.2pt;padding:
  0in 5.4pt 0in 5.4pt;height:12.75pt'>

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

</div>










<p align=center style='text-align:center'><i>See notes to consolidated financial statements.</i></p>
<p align=center style='text-align:center'>-4-</p>



<div class=MsoNormal align=center style='text-align:center;text-autospace:none'>

<hr size=2 width="100%" noshade color=navy align=center>

</div>

<p align=center style='text-align:center;line-height:1.0pt;
text-autospace:none'><b>&nbsp;</b></p>

<b><br clear=all
style='page-break-before:always'>
</b>

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

<p style="text-autospace: none"><b>BASIS OF PRESENTATION</b></p>
<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements should be read in conjunction with the
audited financial statements presented in the Pro-Dex, Inc. (&quot;Pro-Dex&quot; or the
&quot;Company&quot;) Annual Report for the fiscal year ended June 30, 2004.&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, 2004. </p>

<p style='text-align:justify;text-autospace:none'><b>INVENTORIES</b></p>
<p style='text-align:justify;text-autospace:none; text-indent:0.5in'>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=528
 style='width:700px;border-collapse:collapse;border:medium none; '>
 <tr>
  <td width=258 valign=bottom style='width:193.75pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=bottom style='width:103.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>September
  30, 2004<br>
  (unaudited)</p>
  </td>
  <td width=132 valign=bottom style='width:99.0pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  <p align=right style='text-align:right;text-autospace:none'>&nbsp;June
  30, 2004&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=258 valign=top style='width:193.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Raw materials </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 1,173,000 </p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 1,068,000 </p>
  </td>
 </tr>
 <tr>
  <td width=258 valign=top style='width:193.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Work in process </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>514,000</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>242,000</p>
  </td>
 </tr>
 <tr>
  <td width=258 valign=top style='width:193.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Development costs under
  contract</p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>63,000</p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>23,000</p>
  </td>
 </tr>
 <tr>
  <td width=258 valign=top style='width:193.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Finished goods </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,472,000 </u></p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,517,000 </u></p>
  </td>
 </tr>
 <tr>
  <td width=258 valign=top style='width:193.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp; Total
  </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>3,222,000 </p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>2,850,000 </p>
  </td>
 </tr>
 <tr>
  <td width=258 valign=top style='width:193.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Reserve for slow moving items </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (337,000)</u></p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (308,000)</u></p>
  </td>
 </tr>
 <tr>
  <td width=258 valign=top style='width:193.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp; Total
  inventories, net </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>$&nbsp;&nbsp; &nbsp; 2,885,000 </u></p>
  </td>
  <td width=132 valign=top style='width:99.0pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>$&nbsp;&nbsp; &nbsp; 2,542,000 </u></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 or 2004.&nbsp; The Company prepares its annual impairment testing on
April 1 of each year.&nbsp; The Company has compared the estimated carrying value
with the estimated fair value of the operations and determined that none of the
goodwill recorded as of April 1, 2004 was impaired.&nbsp; Additionally, during the
quarter ended September 30, 2004, management determined that there are no
events or circumstances which have occurred that would indicate an impairment
of the goodwill had occurred.&nbsp; </p>
<p style='text-align:center;'>-5-</p>

<div class=MsoNormal align=center style='text-align:center;text-autospace:none'>

<hr size=2 width="100%" noshade color=navy align=center>

</div>



<br clear=all
style='page-break-before:always'>




<p style='line-height:1.0pt;text-autospace:none'><b>&nbsp;</b></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=left>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=630
 style='width:740px;margin-left:1.9pt;border-collapse:collapse;border:medium none; '>
 <tr style='page-break-inside:avoid'>
  <td width=375 valign=top style='width:281.4pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

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

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

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

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

  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Net
  income </p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 462,000</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 193,000</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Basic net income per common share:</p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

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

  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp; Weighted average of common shares outstanding&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,863,902</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'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,776,600</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Basic net income per common share&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.05</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.02</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

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

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

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

  </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'>

  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp; Weighted average of common shares outstanding&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,863,902</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'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,776,600</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities
  (options)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 456,033</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'>
  <p align=left style='margin-top:0in;text-align:left;page-break-after:
  auto'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;522,865</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities
  (warrants)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;72,064</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'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 35,911</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'>
  <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'>

  <p align="center">&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'>
  <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'>
  <p>Weighted average number of common and shares - Diluted</p>
  </td>
  <td width=129 valign=bottom style='width:96.6pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,470,127</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'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,413,505</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Diluted net income per common share</p>
  </td>
  <td width=129 valign=top style='width:96.6pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.05</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.02</p>
  </td>
 </tr>
</table>

</div>





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



<p style='text-align:justify;text-indent:.5in'>In October 2003,
the Company's credit facility with Wells Fargo Business Credit Inc. 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 Company's
eligible accounts receivable.&nbsp; The terms of the credit facility expired in
October 2004 and required monthly interest payments at the prime rate (4.75% at
September 30, 2004) or LIBOR (1.84% (1 month) to 2.02% (three months) at
September 30, 2004) plus 2.75% based on outstanding borrowings, with no minimum
interest charge.&nbsp; The outstanding borrowings were secured by all assets of
the Company and were guaranteed by the Company.&nbsp; There was no outstanding
balance under the terms of this credit facility as of September 30, 2004.&nbsp;
The total additional eligible borrowing capacity based on the receivables
balances at September 30, 2004 was $801,000.</p>



<p style='text-align:justify;text-indent:.5in'>In October 2004,
the credit facility with Wells Fargo was renewed again with a more favorable
facility for borrowings up to $2,000,000.&nbsp; The terms of the credit
facility expire in October 2005 and require monthly interest payments at the
prime rate (4.75% at September 30, 2004) or LIBOR (1.84% (1 month) to 2.02%
(three months) at September 30, 2004) plus 2.50% based on outstanding
borrowings, with a no minimum interest charge.&nbsp; The outstanding borrowings
are secured by all assets of, and guaranteed by, the Company. </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 Wells Fargo credit facility.&nbsp; At September
30, 2004 the Company was in compliance with all such covenants.&nbsp;</p>
<p style='text-align:justify;text-indent:.5in'>&nbsp;</p>
<p style='text-align:center;'>&nbsp;-6-</p>

<div class=MsoNormal align=center style='text-align:center;text-autospace:none'>

<hr size=2 width="100%" noshade color=navy align=center>

</div>

<p style='line-height:1.0pt;text-autospace:none'><b>&nbsp;</b></p>

<b><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 $350,000 due to a shareholder pursuant
to a Not to Compete liability under the terms of a Noncompetition agreement offset
by a $213,000 Note Receivable asset from the same shareholder.&nbsp; The interest
rate on both is 7% annually.&nbsp; The Note Receivable is collateralized by the Not
to Compete liability.&nbsp; This debt is subordinated to the line of credit with
Wells Fargo.&nbsp; The following tables summarize the remaining net principal values
of these instruments classified as debt at September 30, 2004:</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=560
 style='width:419.9pt;margin-left:-1.45in;border-collapse:collapse'>
 <tr>
  <td valign=top style='width:435px;border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding:0in; '>
  <p style='text-autospace:none; line-height:12pt'>Total Not to Compete payable</p>
  </td>
  <td valign=top style='width:435px;border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding:0in; '>
  <p align="right">$</td>
  <td valign=top style='width:123px;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; ' align="right">
  <p style='text-autospace:none; line-height:12pt'>&nbsp;&nbsp;&nbsp; 350,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:435px;border-left:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-autospace:none; line-height:12pt'><u>Less: interest portion </u></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:435px;border-left:1.0pt solid windowtext;
  padding:0in; '>
  &nbsp;</td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:123px;border-right:1.0pt solid windowtext;
  padding:0in; ' align="right">
  <div style="width: 122px; height: 9px; border-bottom-style: solid; border-bottom-width: 1px">
  <p style='text-autospace:none; line-height:12pt'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23,000&nbsp;</p>
	</div>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:435px;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;border-right:
  medium none;padding:0in; '>
  <p style='text-autospace:none; line-height:12pt'>Net Not to Compete payable</p>
  </td>
  <td valign=top style='width:435px;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;border-right:
  medium none;padding:0in; '>
  <p align="right">$</td>
  <td valign=top style='width:123px;border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; ' align="right">
  <div style="width: 123px; height: 17px; border-bottom-style: double; border-bottom-width: 3px">
  <p style='text-autospace:none; line-height:12pt'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; 327,000&nbsp;</p>
  </div>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none; line-height:12pt'>&nbsp;</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=560
 style='width:419.9pt;margin-left:-1.45in;border-collapse:collapse' id="table2">
 <tr>
  <td valign=top style='width:229px;border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding:0in; '>
  <p style='text-autospace:none; line-height:12pt'>Total Note Receivable</p>
  </td>
  <td valign=top style='width:206px;border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding:0in; '>
  <p align="right">$</td>
  <td width=123 valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; ' align="right">
  <p style='text-autospace:none; line-height:12pt' align="right">&nbsp;&nbsp;&nbsp;&nbsp; 213,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:229px;border-left:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-autospace:none; line-height:12pt'><u>Less: interest portion </u></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:206px;border-left:1.0pt solid windowtext;
  padding:0in; '>
  &nbsp;</td>
  <td width=123 valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding:0in; ' align="right">
  <div style="width: 119px; height: 13px; border-bottom-style: solid; border-bottom-width: 1px">
  <p align=center style='text-align:right;text-autospace:none; line-height:12pt'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14,000&nbsp;</p></div>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:229px;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;border-right:
  medium none;padding:0in; '>
  <p style='text-autospace:none; line-height:12pt'>Net Note Receivable</p>
  </td>
  <td valign=top style='width:206px;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;border-right:
  medium none;padding:0in; '>
  <p align="right">$</td>
  <td width=123 valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding:0in; ' align="right">
  <div style="width: 124px; height: 19px; border-bottom-style: double; border-bottom-width: 3px">
  <p align=center style='text-align:right;text-autospace:none; line-height:12pt'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  &nbsp;&nbsp;&nbsp;&nbsp; 199,000&nbsp;</p>
  </div>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none; line-height:12pt'>&nbsp;</p>



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=560
 style='width:419.9pt;margin-left:-1.45in;border-collapse:collapse' id="table1">
 <tr>
  <td valign=top style='width:229px;border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding:0in; '>
  <p style='text-autospace:none; line-height:12pt'>Net Not to Compete payable</p>
  </td>
  <td valign=top style='width:206px;border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding:0in; '>
  <p align="right">$</td>
  <td valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0in; ' align="right">
  <p style='text-autospace:none; line-height:12pt' align="right">327,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:229px;border-left:1.0pt solid windowtext;
  padding:0in; '>
  <p style='text-autospace:none; line-height:12pt'><u>Less: Net Note Receivable</u></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:206px;border-left:1.0pt solid windowtext;
  padding:0in; '>
  &nbsp;</td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding:0in; ' align="right">
  <div style="width: 126px; height: 14px; border-bottom-style: solid; border-bottom-width: 1px">
  <p align=center style='text-align:right;text-autospace:none; line-height:12pt'>199,000&nbsp;</p>
	</div>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:229px;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;border-right:
  medium none;padding:0in; '>
  <p style='text-autospace:none; line-height:12pt'>Total Net Debt to shareholder</p>
  </td>
  <td valign=top style='width:206px;border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;border-right:
  medium none;padding:0in; '>
  <p align="right">$</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:0in; ' align="right">
  <div style="width: 126px; height: 15px; border-bottom-style: double; border-bottom-width: 3px">
  <p align=center style='text-align:right;text-autospace:none; line-height:12pt'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  &nbsp;&nbsp;&nbsp;&nbsp; 128,000&nbsp;</p>
  </div>
  </td>
 </tr>
</table>

</div>

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



<div align=center>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=560
 style='width:419.9pt;margin-left:-104.65pt;border-collapse:collapse'>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Unsecured Net Debt to a
  shareholder, bearing interest at 7%, net 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'>

  <p style='text-autospace:none' align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  <br>
  $&nbsp;&nbsp;&nbsp; 128,000&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><u>Less net current portion </u></p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;71,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=437 valign=top style='width:327.65pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Net Long-term debt </p>
  </td>
  <td width=123 valign=top style='width:92.25pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 57,000</u></p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>On October 27, 2004, the Not to Compete Liability and the Note Receivable
were each paid in full at book value, with no further obligation under either
instrument remaining.</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 $2,012,000 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-align:center'>-7-</p>

<div class=MsoNormal align=center style='text-align:center;text-autospace:none'>

<hr size=2 width="100%" noshade color=navy align=center>

</div>

<b><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 September 30, 2004, the Company granted 45,000
Common Stock Options under the Director's Plan exercisable at an average per
share price of $2.37 (fair market value $1.35 per option) and 25,000 Common
Stock Options under the Employee's Plan exercisable at an average per share
price of $1.86 (fair market value $1.07 per option).&nbsp; </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>During the quarter ended September 30, 2004, 15,000 Common Stock Options
under the Employee's Plan expired unexercised.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The fair market 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 65%, risk-free
interest rate of approximately 3.3% to 3.7%; and expected lives of five years.</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=693
 style='width:700px;margin-left:4.5pt;border-collapse:collapse;border:medium none; '>
 <tr style='page-break-inside:avoid'>
  <td style='border:none;padding:0in 0in 0in 0in' width=1><p>&nbsp;</td>
  <td width=200 colspan=2 valign=top style='width:150.0pt;border:none;
  padding:0in 5.4pt 0in 5.4pt'>

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

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

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

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

  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;462,000</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;193,000</p>
  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=bottom style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

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



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

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

  </td>
  <td width=221 colspan=2 valign=bottom style='width:165.8pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
  <p>(Deduct) total
  stock-based employee 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=bottom style='width:105.65pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>



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

  <p><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;15,000</u></p>
  </td>
  <td width=130 valign=bottom style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><u>&nbsp;&nbsp;&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'>
  <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'>
  <p>&nbsp;</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;447,000</u></p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><u>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 193,000</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'>

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

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

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

  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>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'>
  <p>As reported</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;0.05</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.02</p>
  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=bottom style='width:149.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Pro forma</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;0.05</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.02</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'>

  &nbsp;</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'>
  &nbsp;</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'>
  &nbsp;</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'>
  &nbsp;</td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=top style='width:149.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Diluted earnings per share: </p>
  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
  <p>As reported</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;0.05</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.02</p>
  </td>
  <td style='border:none;padding:0in 0in 0in 0in' width=2><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=199 colspan=2 valign=bottom style='width:149.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=221 colspan=2 valign=top style='width:165.8pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>Pro forma</p>
  </td>
  <td width=141 colspan=2 valign=top style='width:105.65pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;0.05</p>
  </td>
  <td width=130 valign=top style='width:97.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.02</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>&nbsp;</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;
Prior to July 1, 2004, the Company's reports included two business segments that
were each strategic business units and which offered different products and
services.&nbsp; They were operated separately as each business possessed different
technology and marketing strategies.&nbsp;&nbsp;&nbsp; The two reportable segments within
Pro-Dex were: Rotary Devices (formerly, Micro Motors) and Motion Control (formerly,
Oregon Micro Systems).</p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As
of July 1, 2004, due to subsidiary mergers of Micro Motors and Oregon Micro
Systems into Pro-Dex, Inc. and the consolidation of the Company's management
control, resource allocation and operations, separate business segments are no
longer applicable under FASB 133 and are no longer separately defined.&nbsp; There
is no restatement of the Company's consolidated financial information due to
the subsidiary merger and segment elimination. </p>

<p style='text-align:center'><b>&nbsp;</b>-8-</p>

<div class=MsoNormal align=center style='text-align:center;text-autospace:none'>

<hr size=2 width="100%" noshade color=navy align=center>

</div>

<p style='line-height:1.0pt;text-autospace:none'><b>&nbsp;</b></p>

<b><br clear=all
style='page-break-before:always'>
</b>

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

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

<p><b>COMPANY OVERVIEW</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 three-month
periods ended September 30, 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, 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;) is a Colorado
corporation, organized in 1978, currently conducting business in two
locations.&nbsp; In the fiscal year ended June 30, 2004 (&quot;2004&quot;), the Company
eliminated its &quot;holding company&quot; structure and terminated the separate legal
status of the Company's operating subsidiaries, Micro Motors, Inc. (&quot;Micro
Motors&quot;) headquartered in Santa Ana, California and Oregon Micro Systems,
Inc. (&quot;OMS&quot;) headquartered in Beaverton, Oregon, through the merger
of each such subsidiary into the Company.&nbsp; As a result, the Company no longer
operates as a holding company but as one unified business operating in two
locations; Santa Ana and Beaverton.&nbsp; Management anticipates that the operating
activities and focus of each location will become further integrated into one
company operating structure, with the historical legal separations and
associated overhead costs removed. &nbsp;The Company
specializes in bringing speed to market&nbsp;in the&nbsp;development and manufacture
of&nbsp;technology-based solutions that incorporate embedded motion control and
miniature rotary drive systems.&nbsp; The Company designs and produces products
serving the medical, dental, factory automation and scientific research
markets.&nbsp; The Company's strategic focus is to get customers to market faster,
at a lower cost and with a higher quality product.&nbsp; The Company's products
are found in hospitals, dental offices, medical engineering labs, scientific
research facilities and high tech manufacturing operations&nbsp;around the
world.</p>
<p style='text-align:center;text-autospace:
none'>-9-</p>



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<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 <u><font color="#0000FF">www.pro-dex.com</font></u>.&nbsp;
The Company's annual reports on Form 10-KSB, quarterly reports on Form 10-QSB,
current reports on Form 8-K, amendments to those reports and other Securities
and Exchange Commission (&quot;SEC&quot;) filings, are available free of charge through
the Company's website as soon as reasonably practicable after such reports are
electronically filed with, or furnished to, the SEC.&nbsp; In addition the Company's
Code of Ethics and other corporate governance documents may be found on its
website at the Internet address set forth above.&nbsp; The Company's filings with
the SEC may also be read and copied at the SEC's
Public Reference Room at 450 Fifth Street,
  N.W., Washington, D.C. 20549.&nbsp; You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.&nbsp; The SEC maintains
an Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC at
http://www.sec.gov.</p>



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



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The majority of the Company's revenue is derived from designing,
developing and manufacturing electric, air, and battery powered rotary drive
systems for the medical device and dental industries, and motion control
software and hardware for industrial and scientific applications.&nbsp; The Company
also distributes its own line of pneumatic and electric dental hand pieces sold
under the Micro Motors name utilizing a network of independent sales
representatives across North America.&nbsp; A large part of the revenue growth of
the Company has been driven by developing and selling numerous private label
rotary drive systems for use in dental, cranial, spinal, arthroscopic and
orthopedic surgery.&nbsp; Other revenue sources include designing and manufacturing
miniature pneumatic motors and motion control systems for industrial
applications in the automotive, aerospace, apparel and entertainment
industries.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Company-funded research and development supports the development of
rotary drive platforms.&nbsp; The Company then seeks customer-funded projects to
customize these platforms to specific customer requirements. Company-funded
research and development projects are generally expected to convert to
customer-funded projects within six to eighteen months.&nbsp; Company-funded project
costs are expensed as incurred.&nbsp; In the three months ended September 30, 2004, $418,000
was expensed; an increase of $31,000 from the $387,000 expensed in the three
months ended September 30, 2003.&nbsp; </p>



<p align="justify" style="text-indent: 0.5in">In customer funded development projects, costs are
capitalized and recognized as a cost sales as specific deliverables within the
development contracts are made, matching the costs to the revenue.&nbsp; In the three
months ended September 30, 2004, $37,000 was recognized as cost of sales, and $142,000
was recognized as cost of sales in the three months ended September 30, 2003,
reflecting the slowdown in new product launches this quarter.</p>



<p align="justify" style="text-indent: 0.5in">Customer-funded research and development provided $149,000
in revenue in the three months ended September 30, 2004, and $118,000 in
revenue in the three months ended September 30, 2003.&nbsp; The results of the
development work are intended to provide the Company with long-term exclusive
manufacturing agreements and provide the customer with the 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'>The Company's dental products are sold to original equipment
manufacturers and dental product distributors.&nbsp; An independent dealer network
was engaged in 2003 to market its own branded line of dental products in a more
effective manner.&nbsp; The medical products sales represent the manufacture of
proprietary designs developed by the Company under exclusive design and supply
agreements.&nbsp; The Company designs and manufactures embedded multi-axis motion
controllers used to regulate the motion of servo and stepper motors,
predominantly for the factory automation and medical analysis equipment
industries.&nbsp; The controllers support the platforms for PCI, VME, ISA, and cPCI
busses as well as standalone requirements.&nbsp; Other products sold by the Company
include motors, drivers, cables, software and a variety of accessories to meet
most embedded motion control requirements; as well as pneumatic motors for
industrial applications that are marketed directly to end-users and through
industrial supply distributors.&nbsp; The increase in the percent of sales of
medical products and the decrease in the percentage of sales of dental product
sales is a direct result of the shift in the focus of the Company's research
and development efforts away from dental products and toward the Company's
capabilities in the medical product market.&nbsp;&nbsp; </p>
<p style='text-align:center;text-autospace:
none'>-10-</p>



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<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Of Pro-Dex sales in 2004, over 16% were shipments of products developed
in the last 12 months and 31% 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'>The Company's commitment to quality manufacturing is demonstrated by its
many independently verified certifications for maintaining quality processes
and products.&nbsp; The Company 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, the Company is generally able to fill orders within
sixty (60) days.&nbsp; At September 30, 2004, the Company had a backlog, including
orders for delivery beyond 60 days, of $4.3 million compared with a backlog of
$5.1 million at June 30, 2004 and $5.1 million at September 30, 2003.&nbsp; The
Company expects to fill all of its future orders during the current fiscal
year.&nbsp; The decreased backlog is due to the Company transitioning to a royalty
payment agreement from a manufacturing agreement for its HealOzone product and
the timing of receiving and shipping against long-term blanket purchase
orders.&nbsp; Although Pro-Dex may experience seasonal fluctuations in its new order
bookings due to the timing of major medical, dental and industrial shows and
events, it does not typically experience seasonal fluctuations in its order
shipments.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>The Company
distributes its products directly to original equipment manufacturers and
through a network of high technology distributors within the United States.&nbsp;
Internationally, the Company has sales agreements with foreign distributors or
sells through the domestic subsidiaries of foreign customers.</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:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company
determines its inventory value at the lower of cost (first-in, first-out
method) or market value and calculates a reserve for slow moving items to
reflect a reduced marketability for the item.&nbsp; The reserve is calculated by
comparing the quantity of the item on hand with its prior twelve month sales.&nbsp;
If over twenty four months of inventory for a specific part is believed to be on
hand, between 20% and 100% of its value may be included in the inventory
reserve.&nbsp; The actual percentage reserved depends on the total quantity on hand,
its sales history, and expected near term sales prospects.</p>



<p style='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; In accordance with the
requirements of SFAS No. 142, the Company has recorded no impairment charge in
2003 or 2004.&nbsp; The Company prepares its annual impairment testing on April 1 of
each year.&nbsp; </p>
<p align="center">-11-</p>



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<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 of
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 September 30, 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=left>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='margin-left:9.9pt;border-collapse:collapse;border:none' width="700">
 <tr style='page-break-inside:avoid'>
  <td width=369 rowspan=2 valign=top style='width:276.75pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=249 colspan=2 valign=top style='width:186.75pt;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'>
  <p align=center style='text-align:center'>Three Months Ended September
  30,</p>
  </td>
 </tr>
 <tr style='page-break-inside:avoid'>
  <td width=120 valign=top style='width:1.25in;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=129 valign=top style='width:96.75pt;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'>
  <p align=center style='text-align:center'>2003</p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top style='width:276.75pt;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>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' align="right">
  <p style='margin-right:-.05in'>&nbsp;100.0%</p>
  </td>
  <td width=129 valign=top style='width:96.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p style='margin-right:-.05in'>&nbsp;100.0%</p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top style='width:276.75pt;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>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' align="right">
  <p style='margin-right:-.05in'>44.2&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=129 valign=top style='width:96.75pt;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 style='margin-right:-.05in'>56.3&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top style='width:276.75pt;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>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' align="right">
  <p style='margin-right:-.05in'>55.8&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=129 valign=top style='width:96.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p style='margin-right:-.05in'>43.7&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top style='width:276.75pt;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=120 valign=top style='width:1.25in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=129 valign=top style='width:96.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=369 valign=top style='width:276.75pt;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>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' align="right">
  <p style='margin-right:-.05in'>22.3&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=129 valign=top style='width:96.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p style='margin-right:-.05in'>23.2&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top style='width:276.75pt;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>Research and Development Costs </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' align="right">
  <p style='margin-right:-.05in'>12.5&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=129 valign=top style='width:96.75pt;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 style='margin-right:-.05in'>11.0&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top style='width:276.75pt;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>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=120 valign=top style='width:1.25in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p style='margin-right:-.05in'>21.0&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=129 valign=top style='width:96.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p style='margin-right:-.05in'>9.5&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top style='width:276.75pt;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=120 valign=top style='width:1.25in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
  <td width=129 valign=top style='width:96.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">

  </td>
 </tr>
 <tr>
  <td width=369 valign=top style='width:276.75pt;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>Net interest and other expense (income)</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' align="right">
  <p>(2.1)&nbsp;</p>
  </td>
  <td width=129 valign=top style='width:96.75pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right">
  <p>0.4&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top style='width:276.75pt;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' height="22">

  &nbsp;</td>
  <td width=120 valign=top style='width:1.25in;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt' align="right" height="23">

  </td>
  <td width=129 valign=top style='width:96.75pt;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' align="right" height="23">

  </td>
 </tr>
 <tr>
  <td width=369 valign=top style='width:276.75pt;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>Provision for Income
  Taxes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </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' align="right">
  <p style='margin-right:-.05in'>9.2&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=129 valign=top style='width:96.75pt;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 style='margin-right:-.05in'>3.7&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top style='width:276.75pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <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' align="right">
  <p style='margin-right:-5.4pt'><u>13.9%</u></p>
  </td>
  <td width=129 valign=top style='width:96.75pt;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 style='margin-right:-5.4pt'><u>5.4%</u></p>
  </td>
 </tr>
</table>

</div>

<p align="center">&nbsp;-12-</p>

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</div>

<p style='text-align:justify;line-height:1.0pt'><b>&nbsp;</b></p>

<b><br clear=all
style='page-break-before:always'>
</b>

<p style='text-align:justify;text-indent:.5in'><b>Net Sales.</b>&nbsp;
Consolidated sales decreased $196,000 or 6% for the quarter ended September 30,
2004, compared to the quarter ended September 30, 2003.&nbsp; Medical products
declined as a percent of sales to 33% from 39% in the last quarter and 43% in
the same quarter last year due to the timing of new product launches.&nbsp; Shipments
to dental customers decreased 27% as HealOzone shipments in the prior quarter were
replaced by royalty payments.&nbsp; Sales to factory automation and industrial
customers increased by 134% as the industry maintained its higher levels of
activity as compared to the last three years. &nbsp;Development fees were reduced by
31% as customer funded development projects transitioned to medical customer production
contracts with production expected later in the fiscal year.&nbsp; Although
selective price increases and decreases were implemented in response to market
conditions, the majority of the sales growth and declines for each product line
is due primarily to increased or decreased sales volume, not the effect of
these price changes.&nbsp; The Company's revenue is derived from four main customer
types.&nbsp; The proportion of Pro-Dex total sales to each customer type is noted in
the table below:</p>



<div align=left>

<table class=MsoNormalTable border=0 cellpadding=0
 style='margin-left:0pt;border-collapse:collapse' width="740">
 <tr>
  <td width=251 valign=top style='width:187.95pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
  <td width=258 colspan=2 valign=top style='width:193.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>Three
  Months Ended September 30,<br>
  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=50 valign=top style='width:37.55pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'><u>FY<br>
  2004 </u></p>
  </td>
  <td width=43 valign=top style='width:32.45pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'><u>FY<br>
  2003 </u></p>
  </td>
  <td width=43 valign=top style='width:32.45pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'><u>FY<br>
  2002
  &nbsp;</u></p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:187.95pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Dental</p>
  </td>
  <td width=144 valign=top style='width:1.5in;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'>23%</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;text-autospace:none'>33%</p>
  </td>
  <td width=50 valign=top style='width:37.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>32%
  </p>
  </td>
  <td width=43 valign=top style='width:32.45pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>43%
  </p>
  </td>
  <td width=43 valign=top style='width:32.45pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>54%
  </p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:187.95pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Medical</p>
  </td>
  <td width=144 valign=top style='width:1.5in;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'>33%</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;text-autospace:none'>43%</p>
  </td>
  <td width=50 valign=top style='width:37.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>41%</p>
  </td>
  <td width=43 valign=top style='width:32.45pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>28%
  </p>
  </td>
  <td width=43 valign=top style='width:32.45pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>17%
  </p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:187.95pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Factory Automation</p>
  </td>
  <td width=144 valign=top style='width:1.5in;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'>31%</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;text-autospace:none'>14%</p>
  </td>
  <td width=50 valign=top style='width:37.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>18%
  </p>
  </td>
  <td width=43 valign=top style='width:32.45pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>19%
  </p>
  </td>
  <td width=43 valign=top style='width:32.45pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>19%
  </p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:187.95pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Government research and other</p>
  </td>
  <td width=144 valign=top style='width:1.5in;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'>12%</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;text-autospace:none'>10%</p>
  </td>
  <td width=50 valign=top style='width:37.55pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>9%</p>
  </td>
  <td width=43 valign=top style='width:32.45pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>10%</p>
  </td>
  <td width=43 valign=top style='width:32.45pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>10%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Gross Profit &amp; Gross Profit Percentage of Sales</b>.&nbsp; The
Company's consolidated gross profit for the quarter ended September 30, 2004
increased 21% over the same quarter in the previous year due to a more profitable
sales mix.&nbsp; Gross profit as a percentage of sales increased to 55.8% for the
quarter ended September 30, 2004 compared to 43.6% for the quarter ended September
30, 2003, as the continued gains from increased factory automation sales, manufacturing
cost improvements and a richer product mix were realized.&nbsp; Gross profit and gross
profit percentage were as follows: </p>



<div align=left>

<table class=MsoNormalTable border=0 cellpadding=0
 style='border-collapse:collapse' width="740">
 <tr>
  <td width=168 valign=top style='width:1.75in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

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

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

  </td>
 </tr>
 <tr>
  <td width=168 valign=top style='width:1.75in;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

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

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

  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td width=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'>
  <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'>
  <p style='text-autospace:none'>Gross Profit</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$ </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>1,860,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>1,541,000&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'>
  <p align=center style='text-align:center;text-autospace:none'>21%</p>
  </td>
 </tr>
 <tr>
  <td width=168 valign=top style='width:1.75in;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Gross Profit Percentage</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>55.8%</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>43.6%</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'>
  <p align=center style='text-align:center;text-autospace:none'>28%</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Selling, General and Administrative Costs (S, G&amp;A)</b>.&nbsp; S, G
&amp; A expenses decreased to $744,000 for the quarter ended September 30, 2004
from $819,000 for the quarter ended September 30, 2003.&nbsp; The decrease is mainly
due to reduced administrative, audit and insurance costs.&nbsp; S, G &amp; A costs
were as follows: </p>



<div align=left>

<table class=MsoNormalTable border=0 cellpadding=0
 style='border-collapse:collapse' width="740">
 <tr>
  <td width=168 valign=top style='width:1.75in;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

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

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

  </td>
 </tr>
 <tr>
  <td width=168 valign=top style='width:1.75in;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

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

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

  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'>2003</p>
  </td>
  <td width=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'>
  <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:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'>Total S, G&amp;A</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>744,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=138 valign=top style='width:103.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right;text-autospace:none'>819,000&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'>
  <p align=center style='text-align:center;text-autospace:none'>9%</p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify;text-indent:.5in'><b>Research and
Development Costs</b>.&nbsp; Research and development expenses increased to $418,000
for the quarter ended September 30, 2004 from $387,000 for the quarter ended September
30, 2003, an increase of 8%.&nbsp; The overall increase is due to a decrease in Company-funded
research and development in support of the medical product lines and dental offset
by increasing Company-funded research and development in support of motion
control system product line extensions.&nbsp; Company-funded research and
development costs were as follows:</p>

<div align=left>

<table class=MsoNormalTable border=0 cellpadding=0
 style='margin-left:0pt;border-collapse:collapse' width="740">
 <tr>
  <td width=274 valign=top style='width:205.85pt;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 September
  30,</p>
  </td>
  <td width=99 valign=top style='width:74.55pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
 </tr>
 <tr>
  <td width=274 valign=top style='width:205.85pt;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=274 valign=top style='width:205.85pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-align:justify'>Total Research and Development
  costs</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'>418,000&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'>387,000&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'>8%</p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify;text-indent:.5in'>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 device and
multi axis motion control technologies and products that will subsequently be
modified to meet the needs of individual customers.&nbsp; The results of the
development work are intended to provide the Company with long-term exclusive
manufacturing agreements.&nbsp; In this initial phase, there are generally no
revenues generated and the associated costs are expensed as incurred.&nbsp; </p>
<p style='text-align:center;'>-13-</p>



<div class=MsoBodyTextIndent align=center style='text-align:center;text-indent:
0in'>

<hr size=2 width="100%" noshade color=navy align=center>

</div>



<br clear=all
style='page-break-before:always'>










<p align="justify" style="text-indent: 0.5in">The second type of research and development effort
is the work performed for and funded by specific customers under the terms of a
formal research and 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
twelve months of the generic development work being completed.&nbsp; The Company
recognizes revenue under these research and development agreements as certain
deliverables are completed 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 sales (COS) when the contracted
deliverable is made, matching the cost to the revenue.&nbsp; Customer-funded
research and development provided $149,000 and $118,000 in revenue in the
quarters ended September 30, 2004 and September 30, 2003, respectively.&nbsp; In the
quarter ended September 30, 2004, $37,000 was recognized as COS, and $142,000 was
recognized as COS in the quarter ended September 30, 2003.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'><b>Operating
Profit &amp; Operating Profit </b><b>Percentage of Sales</b>.&nbsp; The
Company's consolidated operating profit for the quarter ended September 30, 2004
increased to $698,000 compared to the same quarter in the previous year's
operating profit of $335,000.&nbsp; The increase was due to increased factory
automation sales, more profitable sales mix and controlled expenses. Operating
profit as a percentage of sales increased to 20.9% for the quarter ended September
30, 2004 compared to 9.5% for the quarter ended September 30, 2003 due to higher
manufacturing efficiencies and those efficiencies gained through the higher
sales volumes.&nbsp; Operating profit and margin were as follows: </p>

<div align=left>

<table class=MsoNormalTable border=0 cellpadding=0
 style='margin-left:11.65pt;border-collapse:collapse' width="700">
 <tr>
  <td width=203 valign=top style='width:152.0pt;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 September
  30,</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'>

  </td>
 </tr>
 <tr>
  <td width=203 valign=top style='width:152.0pt;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'>Increase </p>
  </td>
 </tr>
 <tr>
  <td width=203 valign=top style='width:152.0pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-align:justify'>Operating Profit</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0in 0in 0in 0in'>
  <p style='text-align:justify'>$ </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 698,000&nbsp;&nbsp;
  </p>
  </td>
  <td width=18 valign=top style='width:13.5pt;padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right'>$ </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right'>335,000&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'>108%</p>
  </td>
 </tr>
 <tr>
  <td width=203 valign=top style='width:152.0pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 0in 0in 0in'>
  <p style='text-align:justify'>Operating Profit Percentage</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right'>20.9%</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 0in 0in 0in'>
  <p align=right style='text-align:right'>9.5%</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'>120%</p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Royalties and Other Income. </b>&nbsp;The Company received $40,000 in
royalty payments in the three months ended September 30, 2004, compared to none
in the prior year's quarter.&nbsp; The Company also received a $33,000 payment in
the three months ended September 30, 2004 in settlement for a defective product
claim against a supplier from its 2004 fiscal year.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Net Interest Expense. </b>&nbsp;Net interest expense was $7,000 in the
quarter ended September 30, 2004, down from $19,000 in the prior year's quarter
due to the reduced balance and rates on the restructured credit line. </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Provision for Taxes</b>. The Company's effective combined Federal and
State tax rate on income from operations was 40% for the quarters ended September
30, 2004, and 2003, respectively. </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 September
30, 2004 was $462,000 or $0.05 per share on a basic and diluted basis, as
compared to a net income of $193,000 or $0.02 per share on a basic and diluted
basis for the three months ended September 30, 2003.&nbsp; </p>

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

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

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

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

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

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

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

<p style='text-align:center;text-autospace:none'><b>&nbsp;</b>-14-</p>

<div class=MsoNormal align=center style='text-align:center;text-autospace:none'>

<hr size=2 width="100%" noshade color=navy align=center>

</div>

<p style='line-height:1.0pt;text-autospace:none'><b>&nbsp;</b></p>

<b><br clear=all
style='page-break-before:always'>
</b>

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

<p style='text-autospace:none'><b>&nbsp;</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 three months last year and the year ended June
30, 2004:</p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=678
 style='width:508.5pt;margin-left:1.9pt;border-collapse:collapse'>
 <tr style='page-break-inside:avoid'>
  <td width=318 valign=top style='width:238.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p><i>&nbsp;</i></p>
  </td>
  <td width=251 colspan=2 valign=top style='width:188.15pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>
  <p align=center style='text-align:center'>Three Months Ended September
  30,</p>
  </td>
  <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=318 valign=top style='width:238.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt'>

  </td>
  <td width=130 valign=top style='width:97.8pt;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, 2004</p>
  </td>
 </tr>
 <tr>
  <td width=318 valign=top style='width:238.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Cash and cash equivalents </p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>$2,097,000</p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>$609,000&nbsp;</p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>$2,070,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=318 valign=top style='width:238.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Net cash provided by (used in) operations </p>
  </td>
  <td valign=bottom 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'>
  <p align=center style='text-align:right'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$18,000</p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>($394,000)</p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>$2,054,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=318 valign=top style='width:238.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Working Capital<sup>1</sup></p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>$6,267,000</p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>$4,816,000&nbsp;</p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>$5,795,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=318 valign=top style='width:238.5pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt'>
  <p>Credit Line outstanding balance </p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>$0&nbsp;</p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>$716,000&nbsp;</p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>$0</p>
  </td>
 </tr>
 <tr>
  <td width=318 valign=top style='width:238.5pt;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 valign=bottom 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'>
  <p align=right style='text-align:right'>$0.91</p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  &nbsp;&nbsp;&nbsp;&nbsp;$0.75 </p>
  </td>
  <td valign=bottom 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'>
  <p align=right style='text-align:right'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  $0.85</p>
  </td>
 </tr>
 <tr>
  <td width=318 valign=top style='width:238.5pt;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 valign=bottom 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'>

  <p align=right style='text-align:right'>57</p>
  </td>
  <td valign=bottom 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'>

  <p align=right style='text-align:right'>58</p>
  </td>
  <td valign=bottom 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'>

  <p align=right style='text-align:right'>59</p>
  </td>
 </tr>
</table>



<p style='margin-left:.5in;text-align:justify;text-autospace:
none'><sup>1</sup> Working Capital is calculated as follows: &nbsp;Ending Current assets
balance less 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>is calculated as
follows: (Total shareholders' equity less Goodwill) divided by (basic
outstanding shares).</p>

<p style='margin-left:.5in;text-align:justify;text-autospace:
none'><sup>3</sup> DSO is calculated as follows: Ending Net Accounts Receivable
balance divided by (Previous Quarter Sales divided by 91 days).</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The Company's working capital at September 30, 2004 increased to $6.3
million compared to $4.8 million at September 30, 2003 and $5.8 million at June
30, 2004.&nbsp; Cash Flow provided by operations was $18,000 in the three months
ended September 30, 2004 compared to cash flow used by operations of ($394,000)
for the three months ended September 30, 2003.&nbsp; Sustained higher profitability
contributed to the provision of cash and increased working capital for the
quarter, even as the Company began to make significant tax payments of $331,000
in the three months ended September 30, 2004 compared to $4,000 in the
comparable quarter last year.&nbsp;</p>



<p style='text-align:justify;text-indent:.5in'>In October 2003,
the Company's credit facility with Wells Fargo Business Credit Inc. 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
Company's eligible accounts receivable.&nbsp; The terms of the credit facility
expired in October 2004 and required monthly interest payments at the prime
rate (4.75% at September 30, 2004) or LIBOR (1.84% (1 month) to 2.02% (three
months) at September 30, 2004) plus 2.75%, based on outstanding borrowings,
with no minimum interest charge.&nbsp; The outstanding borrowings were secured
by all assets of the Company and were guaranteed by the Company.&nbsp; There was no
outstanding balance under the terms of this credit facility as of September 30,
2004.&nbsp; The total additional eligible borrowing capacity based on the
receivables balances at September 30, 2004 was $801,000.</p>



<p style='text-align:justify;text-indent:.5in'>In October 2004,
the credit facility with Wells Fargo was renewed again with a more favorable
facility for borrowings up to $2,000,000.&nbsp; The terms of the credit
facility expire in October 2005 and require monthly interest payments at the
prime rate (4.75% at September 30, 2004) or LIBOR (1.84% (1 month) to 2.02%
(three months) at September 30, 2004) plus 2.50% based on outstanding
borrowings, with a no minimum interest charge.&nbsp; The outstanding borrowings
are secured by all assets of, and guaranteed by, the Company. </p>
<p style='text-align:center;'>-15-</p>

<div class=MsoNormal align=center style='text-align:center'>

<hr size=2 width="100%" noshade color=navy align=center>

</div>



<br
clear=all style='page-break-before:always'>










<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 Wells Fargo credit facility.&nbsp; At September
30, 2004 the Company was in compliance with all such 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; This
repurchase is to be financed with cash generated by operations.&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
2004.</p>



<p style='text-align:justify;text-indent:.5in'>At September 30,
2004, the Company had cash and cash equivalents of $2,097,000.&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 2005. </p>

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

<p style='text-align:justify;text-indent:.5in'>&nbsp;The Chief Executive Officer and Chief Financial
Officer (the principal executive officer and principal financial officer,
respectively) conducted an evaluation of 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;)).&nbsp;&nbsp; Based on that evaluation, which was conducted within 90 days of the
date on which this quarterly report was filed with the Securities and Exchange
Commission, the Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures are effective to ensure that
information required to be disclosed by&nbsp; use in the reports filed or submitted
by us under the Exchange Act is accumulated, recorded, processed, summarized
and reported to&nbsp; management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding whether
or not disclosure is required.</p>



<p style='text-align:justify;text-indent:.5in'>During the
quarter ended September 30, 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><b>&nbsp;</b></p>

<p align="center"><b>&nbsp;</b>-16-</p>

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<hr size=2 width="100%" noshade color=navy align=center>

</div>

<p style='line-height:1.0pt'><b>&nbsp;</b></p>

<b><br clear=all
style='page-break-before:always'>
</b>

<p><b>PART II</b></p>

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



<p style='text-autospace:none; text-indent:0.5in'> <b><font size="2">Item 1.&nbsp;&nbsp;&nbsp;&nbsp;Legal Proceedings
</font> </b></p>



<p style='margin-left:1.0in;text-align:justify;text-autospace:
none'><font size="2">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.</font></p>

<p style='margin-top:.25in;text-align:justify; text-indent:0.5in'>
<font size="2"> <b>Item 2. &nbsp;&nbsp;&nbsp;Unregistered Sales of
Equity Securities and Use of Proceeds. </b>&nbsp;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; None.</font></p>

<p style='margin-top:.25in;text-align:justify; text-indent:0.5in'>
<font size="2"> <b>Item 3. &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.</font></p>

<p style='margin-top:.25in;text-align:justify; text-indent:0.5in'>
<font size="2"> <b>Item 4. &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.</font></p>

<p style='margin-top:.25in;text-align:justify; text-indent:0.5in'>
<font size="2"> <b>Item 5. &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.</font></p>

<p style='margin-top:.25in;text-align:justify; text-indent:0.5in'><b>
<font size="2">Item 6.&nbsp;&nbsp; Exhibits. </font> </b><font size="2">&nbsp;</font></p>

<p style='margin-left:.5in;text-indent:.5in'><u><font size="2">Exhibits</font></u><font size="2">:</font></p>

<p style='margin-left:2.0in;text-indent:-.5in' align="justify"><font size="2">31.1&nbsp;&nbsp;&nbsp;&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</font></p>



<p style='margin-left:2.0in;text-indent:-.5in' align="justify"><font size="2">31.2&nbsp;&nbsp;&nbsp;&nbsp;&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</font></p>



<p><font size="2">SIGNATURES </font> </p>

<p style='text-indent:.5in' align="justify"><font size="2">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.</font></p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=684
 style='width:513.0pt;border-collapse:collapse;width:513.0pt !msorm;border-collapse:
 collapse !msorm'>
 <tr>
  <td valign=top style='width:346px;padding:0in; '>
  <p><font size="2">Date:&nbsp; November 15, 2004</font></p>

  <p><font size="2">PRO-DEX INC. </font> </p>
  </td>
  <td valign=top style='width:338px;padding:0in; '>
  <p><font size="2">Date:&nbsp; November 15, 2004</font></p>

  <p><font size="2">PRO-DEX INC. </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:346px;padding:0in; '>
  <p><font size="2">By: / s / Patrick Johnson </font> </p>
  </td>
  <td valign=top style='width:338px;padding:0in; '>
  <p><font size="2">By: / s / Jeffrey J.
  Ritchey </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:346px;padding:0in; '>

  </td>
  <td valign=top style='width:338px;padding:0in; '>

  <font size="2">&nbsp; </font>

  </td>
 </tr>
 <tr>
  <td valign=top style='width:346px;padding:0in; '>
  <p><font size="2">Patrick Johnson </font> </p>
  </td>
  <td valign=top style='width:338px;padding:0in; '>
  <p><font size="2">Jeffrey J. Ritchey </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:346px;padding:0in; '>
  <p><font size="2">Chief Executive Officer</font></p>
  </td>
  <td valign=top style='width:338px;padding:0in; '>
  <p><font size="2">Secretary and Chief
  Financial Officer<br>
  (Principal Financial and
  Accounting Officer)</font></p>
  </td>
 </tr>
</table>



























<p style='margin-top:0in;line-height:1.0pt'><b>&nbsp;</b></p>



<p style='margin-top:0in;line-height:1.0pt'><b>&nbsp;</b></p>
<p style='margin-top:0in;line-height:1.0pt'>&nbsp;</p>
<p style='margin-top:0in;line-height:1.0pt' align="center">17</p>

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

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

<body>

<p>&nbsp;</p>
<p><b>EXHIBIT 31.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</b></p>

<p align=center style='text-align:center'><b><u>CERTIFICATIONS</u></b></p>



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



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



<p style='margin-left:.5in;text-align:justify;text-indent:-.5in'><font size="2">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 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 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 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 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 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;&nbsp; Evaluated the
effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and</font></p>



<p style='margin-left: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 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 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 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><font size="2">Date: November 15, 2004&nbsp;&nbsp;&nbsp;</font></p>

<p style="margin-left: 3.5in"><u>/s/
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; PATRICK L. JOHNSON<br>
</u>Patrick
L. Johnson<br>
Chief
Executive Officer</p>
<p style="margin-left: 3.5in">&nbsp;</p>

<p style="margin-left: 3.5in">&nbsp;</p>

</body>

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

<head>

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

<body>

<p>&nbsp;</p>
<p><b>EXHIBIT
31.2&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; </b></p>

<p align=center style='text-align:center'><b><u>CERTIFICATIONS</u></b></p>

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



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



<p style='margin-left:.5in;text-align:justify;text-indent:-.5in'><font size="2">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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 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 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 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 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 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;&nbsp; Evaluated the
effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and</font></p>



<p style='margin-left: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 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 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 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><font size="2">Date: November 15, 2004&nbsp;&nbsp;&nbsp;</font></p>

<p style="margin-left: 3.5in"><u>/s/
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; JEFFREY J. RITCHEY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>&nbsp; <br>
&nbsp;Jeffrey
J. Ritchey<br>
Chief
Financial Officer</p>
<p style="margin-left: 3.5in">&nbsp;</p>

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<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>4
<FILENAME>ex32.htm
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<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 September 30, 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" width="740" id="table1">
		<tr>
			<td valign="top">Dated: November 15, 2004</td>
			<td width="397" valign="top">By:<u>
/s/ &nbsp;&nbsp; PATRICK L. JOHNSON&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			<br>
			</u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Patrick
L. Johnson<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chief
Executive Officer and President</td>
		</tr>
		<tr>
			<td valign="top">&nbsp;</td>
			<td width="397" valign="top">&nbsp;</td>
		</tr>
		<tr>
			<td valign="top" height="62">Dated: November 15, 2004</td>
			<td width="397" valign="top" height="62">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;
			<br>
			</u>&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; Chief Financial Officer</td>
		</tr>
	</table>
</div>



<p>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.<u><br>
<br>
</u></p>





<p align=center style='text-align:center;line-height:1.0pt;
text-autospace:none'><b>End of Filing</b></p>
<p align=center style='text-align:center;line-height:1.0pt;
text-autospace:none'>&nbsp;</p>
<p align=center style='text-align:center;line-height:1.0pt;
text-autospace:none'>&nbsp;</p>
<p align=center style='text-align:center;line-height:1.0pt;
text-autospace:none'>&nbsp;</p>
<p align=center style='text-align:center;line-height:1.0pt;
text-autospace:none'>&nbsp;</p>

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