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<SEC-DOCUMENT>0001003297-05-000311.txt : 20050928
<SEC-HEADER>0001003297-05-000311.hdr.sgml : 20050928
<ACCEPTANCE-DATETIME>20050928111656
ACCESSION NUMBER:		0001003297-05-000311
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20050630
FILED AS OF DATE:		20050928
DATE AS OF CHANGE:		20050928

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:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-14942
		FILM NUMBER:		051107100

	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>10KSB
<SEQUENCE>1
<FILENAME>pdex10k1.htm
<TEXT>
<html>

<head>


<title> PRO DEX INC FORM 10K</title>



</head>

<body lang=EN-US link=blue vlink=purple>















<p align=center style='text-align:center;text-autospace:none'>&nbsp;<a name="fis_top_of_document"></a><a
name="prodex10q_htm"></a><a name="fis_form_10qsb"></a></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">FORM
  10-KSB</font></b></p>
  <p style='margin-left:54.0pt;text-indent:-54.0pt;text-autospace:
  none'><b>[X]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
	OF 1934</b></p>
  <p align=center style='text-align:center;text-autospace:none'><b>For
  the fiscal year ended June 30, 2005</b></p>
  <p align=center style='text-align:center'><b>OR</b></p>
  <p style='margin-left:54.0pt;text-indent:-54.0pt;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; FOR THE TRANSITION PERIOD FROM&nbsp;&nbsp; <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>TO&nbsp;
  <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; .</u></b></p>
  <div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=721
 style='width:700px;border-collapse:collapse'>
 <tr>
  <td width=720 colspan=2 valign=top style='width:540.0pt;padding:0pt 0pt 0pt 0pt'>
  <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:0pt 0pt 0pt 0pt'>
  <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:540.0pt;padding:0pt 0pt 0pt 0pt'>
  <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:0pt 0pt 0pt 0pt'>
  <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:540.0pt;padding:0pt 0pt 0pt 0pt'>
  <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:0pt 0pt 0pt 0pt'>
  <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:540.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><b>(Name
  of small business issuer in its charter)&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:332px;padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td valign=top style='width:363px;padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:332px;padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>Colorado </u></b></p>
  </td>
  <td valign=top style='width:363px;padding:0pt; '>
  <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:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:332px;padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b>(State
  or Other Jurisdiction of</b></p>
  </td>
  <td valign=top style='width:363px;padding:0pt; '>
  <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:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:332px;padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b>Incorporation
  or Organization)</b></p>
  </td>
  <td valign=top style='width:363px;padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:332px;padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td valign=top style='width:363px;padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:540.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><b><u>151 E. Columbine Avenue, Santa Ana, California 92707</u></b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  <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:540.0pt;padding:0pt 0pt 0pt 0pt'>
  <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:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:332px;padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td valign=top style='width:363px;padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; &nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:540.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><b>Issuer's
  telephone number: (<u>714) 241-4411 </u></b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  <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:540.0pt;padding:0pt 0pt 0pt 0pt'>
  &nbsp;</td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:540.0pt;padding:0pt 0pt 0pt 0pt'>
  &nbsp;</td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:540.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><b>Securities
  registered under Section 12(b) of the Exchange Act: </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:540.0pt;padding:0pt 0pt 0pt 0pt'>
  &nbsp;</td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:540.0pt;padding:0pt 0pt 0pt 0pt'>
  &nbsp;</td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:332px;padding:0pt; '>
  <p align="center">&nbsp;</td>
  <td valign=top style='width:363px;padding:0pt; '>
  <p align="center"><b>Name of each exchange</b></td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:332px;padding:0pt; '>
  <p align="center"><b><u>Title of each class</u></b></td>
  <td valign=top style='width:363px;padding:0pt; '>
  <p align="center"><b> <u>on
  which registered </u></b>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  </td>
 </tr>
 <tr>
  <td valign=top style='width:332px;padding:0pt; '>
  <p align="center"><b>None</b></td>
  <td valign=top style='width:363px;padding:0pt; '>
  <p align="center"><b>None</b></td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>
  </td>
 </tr>
 <tr>
  <td width=720 colspan=2 valign=top style='width:540.0pt;padding:0pt 0pt 0pt 0pt'>
  <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:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
</table>



</div>



<p align=center style='text-align:center;text-autospace:none'><b>Securities registered under Section 12(g) of the
Exchange Act: </b></p>



<p align=center style='text-align:center;text-autospace:none'><b>Common stock, no par value
<br>
</b>(Title of class) </p>
<p align=center style='text-align:center;text-autospace:none'>&nbsp;</p>

<p align=center style='text-align:center'>-1-</p>

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<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-autospace:none; margin-top:0; margin-bottom:0.001pt'>Check whether
the issuer (1) has filed all reports required by Section 13 or 15(d) of the
Exchange Act during the past 12 months, and (2) has been subject to such filing
requirements for the past 90 days. </p>

<p align=center style='text-align:center;text-autospace:none; margin-top:0; margin-bottom:0.001pt'>Yes
[X]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No&nbsp; [&nbsp; ]</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ X ]</p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; Issuer's revenues for its
most recent fiscal year were $13,834,000. </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The aggregate market value of the voting stock held by non-affiliates
computed by reference to the closing price as of September 19, 2005 was $27,648,000.
For the purpose of this calculation, shares owned by officers, directors and
10% stockholders known to the registrant have been deemed to be owned by
affiliates. This determination of affiliate status is not a determination for
other purposes. </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock outstanding as of the latest practicable date:&nbsp; 9,544,912 shares of Common Stock, no par value, as
of September 19, 2005. </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>DOCUMENTS INCORPORATED BY REFERENCE: Part III incorporates by reference
certain information from the registrant's definitive proxy statement (the
&quot;Proxy Statement&quot;) for the 2005 Annual Meeting of Shareholders.&nbsp;
Certain exhibits are set forth in the Exhibit Index. The Exhibit Index begins
on sequentially numbered page 37. </p>



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



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



<p style='text-align:justify;text-autospace:none'><b>Cautionary
statement pursuant to safe harbor provisions of the Private Securities
Litigation reform act of 1995. </b></p>










<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>When used in this report on Form 10-KSB, the words &quot;expects,&quot;
&quot;anticipates,&quot; &quot;estimates,&quot; &quot;believes,&quot;
&quot;hopes,&quot; &quot;intends,&quot; &quot;forecasts&quot; and similar
expressions are intended to identify &quot;forward-looking statements.&quot;
These statements which are not historical or current facts are made pursuant to
the safe harbor provisions of Section 27a of the Securities Act of 1933, as
amended and Section 21e of the Securities Exchange Act of 1934, as amended, and
the Company intends that such forward-looking statements be subject to those
safe harbor provisions for such statements. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date of this report. While forward-looking
statements represent management's best judgment as to what may occur in the
future, they are subject to risks, uncertainties and important factors beyond
the control of the Company that could cause actual results and events to differ
materially from historical results of operations and events as well as those
presently anticipated or projected. These factors include adverse economic
conditions, entry of new and stronger competitors, capital availability,
unexpected costs, failure to capitalize upon access to new customers, and
marketplace delisting. Other risks and uncertainties which may affect
forward-looking statements about the Company's business and prospects include,
but are not limited to, the ramifications of the continued industry
consolidation of dental products dealers and distributors, managed health care,
increasingly limited acquisition opportunities, the Company's ability to
effectively integrate operations of acquired companies, dealer acceptance and
support of new products, maintaining favorable supplier relationships, the
inability to engage qualified human resources as needed, the possibility of
marketplace delisting, and general economic conditions. The Company disclaims
any obligations subsequently to revise any forward-looking statements to
reflect events or circumstances after the date of such statement or to reflect
the occurrence of anticipated or unanticipated events.</p>

<p align=center style='text-align:center'>-2-</p>

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<p><b>Item 1. &nbsp;&nbsp;&nbsp;&nbsp; Description
of Business</b></p>

<p><b>Company Overview</b></p>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Pro-Dex, Inc. (&quot;Company,&quot; &quot;Pro-Dex&quot;, &quot;we,&quot; &quot;our,&quot;, &quot;us&quot;) is a Colorado
corporation that was chartered in 1978, and 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; We design and manufacture products serving the
medical, dental, factory automation and scientific research markets.&nbsp; Our
strategic value proposition is to get customers to market faster, at a lower total
cost and with a higher quality product.&nbsp; Products that we have developed
and manufactured are used in hospitals, dental offices, medical engineering
labs, scientific research facilities and high tech manufacturing
operations&nbsp;around the world.&nbsp; Until June 30, 2004, Pro-Dex had a
&quot;holding company&quot; legal structure that had become increasingly cumbersome for
the efficient operation of the Company.&nbsp; In the fiscal year ended June 30,
2004, we eliminated the Company's holding company structure and terminated the
separate legal status of our then 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, we
no longer operate as a holding company but as one integrated business operating
in two locations providing a broad range of systems solutions to our
customers.&nbsp; The company names of Micro Motors and Oregon Micro Systems will
continue to be used for marketing purposes as brand names.&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Pro-Dex's principal headquarters are located at 151 E. Columbine Avenue, Santa Ana,   California 92707 and our phone number is 714-241-4411.&nbsp; Our Internet address
is <u><font color="#0000FF">www.pro-dex.com</font></u>.&nbsp; Our annual reports
on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K,
amendments to those reports and other Securities and Exchange Commission
(&quot;SEC&quot;) filings, are available free of charge through our website as soon as
reasonably practicable after such reports are electronically filed with, or
furnished to, the SEC.&nbsp; In addition, our Code of Ethics and other corporate
governance documents may be found on our website at the Internet address set
forth above.&nbsp; Our 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
<font color="#0000FF"> <u>www.sec.gov</u></font>. </p>



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



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The majority of our 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; We also distribute our 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 our recent revenue growth 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:36.0pt;text-autospace:
none'>All years relating to financial data herein shall refer to fiscal years,
unless indicated otherwise.</p>



<p align=center style='text-align:center'>-3-</p>

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<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Company-funded research and development supports the development of generic
rotary drive and motion control platforms.&nbsp; We then seek customer-funded
projects to customize these platforms to specific customer requirements.&nbsp;
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 year ended June 30,
2005, $1,740,000 was expensed; a decrease of $50,000 from the $1,790,000
expensed in the year ended June 30, 2004.&nbsp; </p>



<p align="justify" style="text-indent: 36pt">For customer-funded development projects, costs are
capitalized and recognized as a cost of sales when specific deliverables within
the development contracts are produced, matching the costs to the revenue. In
the year ended June 30, 2005, $144,000 was recognized as cost of sales, compared
to $221,000 recognized as cost of sales in the year ended June 30, 2004.&nbsp; &nbsp;In
the three months ended June 30, 2005, $13,000 was recognized as cost of sales, compared
to $20,000 recognized as cost of sales in the three months ended June 30, 2004,
reflecting the completion of new product launches this quarter.</p>



<p align="justify" style="text-indent: 36pt">Customer-funded research and development provided
$566,000 in revenue for the year ended June 30, 2005, and $426,000 in revenue in the year
ended June 30, 2004.&nbsp; Customer-funded research and development provided $29,000
in revenue in the three months ended June 30, 2005, and $127,000 in revenue in
the three months ended June 30, 2004.&nbsp; The results of customer-funded development
work are intended to provide 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-autospace:ideograph-numeric ideograph-other; text-indent:36pt' align="justify">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="center">
<TABLE width="700" border=0 cellspacing=0 cellpadding=0 id="table1">
<TR>
   <TD>&nbsp;</TD>
   <TD width="36%">&nbsp;</TD>
   <TD width="9%" align="center" rowspan="2" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">FY<br>
	2005</FONT></TD>
   <TD width="9%" align="center" rowspan="2" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">FY<br>
	2004</FONT></TD>
   <TD width="9%" align="center" rowspan="2" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">FY<br>
	2003</FONT></TD>
   <TD width="9%" align="center" rowspan="2" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">FY<br>
	2002</FONT></TD>
</TR>
<TR>
   <TD>&nbsp;</TD>
   <TD width="36%"><FONT size=2 face="sans-serif">% of Total Sales</FONT></TD>
</TR>
<TR>
   <TD colspan="2" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">Dental</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">24%</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">32%</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">43%</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">54%</FONT></TD>
</TR>
<TR>
   <TD colspan=2 width="50%" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">Medical</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">42%</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">41%</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">28%</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">17%</FONT></TD>
</TR>
<TR>
   <TD colspan=2 width="50%" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">Industrial</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">26%</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">18%</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">19%</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">19%</FONT></TD>
</TR>
<TR>
   <TD colspan=2 width="50%" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">Government research and other</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">8%</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">9%</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">10%</FONT></TD>
   <TD width="9%" align="center" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000"><FONT size=2 face="sans-serif">10%</FONT></TD>
</TR>
</TABLE>
</div>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Medical product sales represent the manufacture of products which utilize
proprietary designs developed by the Company under exclusive design and supply
agreements.&nbsp; Our dental products are sold to original equipment manufacturers
and dental product distributors.&nbsp; An independent dealer network was engaged in
2003 to market our own branded line of dental products in a more effective
manner.&nbsp; We also design and manufacture 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 stand-alone
requirements.&nbsp; In addition, we make and sell pneumatic motors for industrial
applications that are marketed directly to end-users and through industrial
supply distributors.&nbsp; The increase in the percentage 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 our research and development
efforts away from dental products and toward our capabilities in the medical
product market.&nbsp;&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Of Pro-Dex sales in 2005, over 15% were shipments of products developed
in the last 12 months and 24% were shipments of products developed in the last
24 months.&nbsp; Of Pro-Dex sales in 2004, over 16% were shipments of products
developed in the previous 12 months and 31% were shipments of products
developed in the previous 24 months.</p>



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<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>In 2005, the top 20 customers accounted for 69% of our sales, compared to
72% in 2004.&nbsp; In 2005, our three largest customers accounted for 31% of such
sales with one customer accounting for over 17% of sales.&nbsp; This compares to
2004 when our three largest customers accounted for 32% of our sales with the
largest customer accounting for 17%.&nbsp; No other customer accounted for over 10%
of sales in either year.&nbsp; Our larger customers include Smith and Nephew,
Medtronics, Sullivan Schein, Karl Storz, Walter Lorenz, Applied Materials and
Pemstar.&nbsp; In some cases, disclosure of other larger customer names is
prohibited by confidentiality agreements with such entities.&nbsp; Our medical and
industrial customers are typically larger companies, while our dental products
customers are typically smaller companies.&nbsp; We have no plans to discontinue the
sales relationships with our existing significant customers, and have no
knowledge that these significant customers have any plans to discontinue their
relationships with us, although the relationships may change over time.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>All of the raw materials used to manufacture of our products are
purchased from various suppliers and are available from several sources.
Precipart Corporation, Insight Electronics, LLC and Avenet Electronics
Marketing are some examples of our key suppliers.&nbsp; We consider our
relationships with our suppliers and manufacturers to be good.&nbsp; We do not
intend to terminate any such relationship at this time, nor does management
have knowledge that any supplier or manufacturer intends to terminate its
relationship with Pro-Dex.&nbsp; Pro-Dex has no exclusive arrangements with any of
its suppliers or manufacturers.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Our commitment to quality manufacturing is demonstrated by our three independently
verified certifications for maintaining quality processes and products.&nbsp; We
hold 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:36.0pt;text-autospace:
none'>At the present time, we are generally able to fill orders within sixty
(60) days.&nbsp; At June 30, 2005, we had a backlog, including orders for delivery
beyond 60 days, of $7.9 million compared with a backlog of $5.1 million at June
30, 2004.&nbsp; We expect to ship most of our backlog in 2006 and the remainder in
2007.&nbsp; The increased backlog is due to the receipt of several high-value,
long-term purchase orders in the last fiscal year from new and existing
customers.&nbsp; We do not typically experience seasonal fluctuations in our new
order bookings, but may experience variability in our new order bookings due to
the timing of major new product launches.&nbsp; Similarly, we do not typically
experience seasonal fluctuations in our shipments and revenues.&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt'>We sell our products
using several methods; selling directly to the customer, selling directly to
original equipment manufacturers and selling through a network of high
technology and dental product distributors within North America.&nbsp;
Internationally, the Company has sales agreements with foreign distributors or
sells through the domestic subsidiaries of foreign customers.</p>



<p style='text-align:justify;text-indent:36.0pt'>The Pro-Dex
corporate structure has continued to evolve since the divestiture of the
Company's Biotrol and Challenge subsidiaries in June of 2001 through the recent
elimination of the holding company structure and consolidation of the remaining
operating subsidiaries in June of 2004.&nbsp; Coincident with the dental consumable
subsidiary sale in 2001, our executive operations in Colorado were consolidated
into the facilities in Santa Ana, California.&nbsp; This and other efforts to
streamline our structure and reduce corporate overhead saved approximately
$980,000 in 2003 as compared to 2002, primarily in reduced lease costs,
eliminated management salary costs and reduced consulting fees.&nbsp; We saved an
additional $133,000 in 2004 as compared to 2003 and an additional $148,000 in
2005 as compared to 2004, insurance, legal, and consulting costs were reduced
further.</p>

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

<p style='text-align:justify;line-height:normal'><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i>The
markets for products in the healthcare and factory automation industries are
intensely competitive, and we face significant competition from a number of
different sources.&nbsp; Several of our competitors have significantly greater name
recognition as well as substantially greater financial, technical, product
development and marketing resources than we do.</p>

<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We
compete in all of our markets with other major healthcare and factory
automation related companies. Competitive pressures and other factors, such as
new product or new technology introductions by us or our competitors, may
result in price or market share erosion that could have a material adverse
effect on our business, results of operations and financial condition.&nbsp; Also,
there can be no assurance that our products and services will achieve broad
market acceptance or will successfully compete with other products targeting
the same customers.&nbsp; <b><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i></b></p>

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

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<p style='text-align:justify;text-autospace:none'><b>Research
and Development </b></p>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none; margin-top:0; margin-bottom:0.001pt'>We conduct company-wide and project specific research and development
programs. These product development programs are important to both maintain and
improve our market position. The net amounts spent on research and development
activities in 2005 and 2004 were approximately $1.74 million and $1.79 million,
respectively.&nbsp; Our research and development effort involves the design and
manufacture of products that perform specific applications for our customers.&nbsp; We
continue to target our research and development expenses toward three goals:</p>

<p style='margin-left:60.0pt;text-align:justify;text-indent:
- -18.0pt;text-autospace:none; margin-top:0; margin-bottom:0.001pt'>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
expanding our customer base in the medical device industry</p>

<p style='margin-left:60.0pt;text-align:justify;text-indent:
- -18.0pt;text-autospace:none; margin-top:0; margin-bottom:0.001pt'><b>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</b>general technical advances, and </p>

<p style='margin-left:60.0pt;text-align:justify;text-indent:
- -18.0pt;text-autospace:none; margin-top:0; margin-bottom:0.001pt'><b>3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</b>enhancements of current product lines.&nbsp; </p>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none; margin-top:0; margin-bottom:0.001pt'>We continue to gain a greater commitment level from our customers to
share research and development costs by billing them for non-recurring
engineering expenses. The fees received for non-recurring engineering expenses
do not, however, represent a significant portion of our revenue.&nbsp; </p>

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



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>At June 30, 2005, we had 87 full-time employees compared to 82 full-time
and 1 part-time employees at June 30, 2004.&nbsp; As of June 30, 2005, there were 74
persons employed at the Santa Ana location and 13 persons employed at the Beaverton location compared to 68 persons employed at the Santa Ana location and 15
persons employed at the Beaverton location at June 30, 2004.&nbsp; We have increased
the use of temporary labor from temporary staffing agencies as a response to our
accelerating sales rate during the fourth quarter and employed 15 agency temps at June 30, 2005, which
is an increase from 2 at June 30, 2004. </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>None of our employees are a party to any collective bargaining agreements
with us. We consider our relationships with our employees to be good. </p>

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



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Our manufacture and distribution of dental and medical devices are
subject to a number of state and federal regulatory bodies, including state
dental boards and the Food and Drug Administration (&quot;FDA&quot;). The
statutes, regulations, administrative orders, and advisories that affect the
Company's businesses are complex and subject to diverse, often conflicting,
interpretations. While we make every effort to maintain full compliance with
all applicable laws and regulations, we are unable to eliminate an ongoing risk
that one or more of our activities may at some point be determined to have been
non-compliant. The penalties for non-compliance could range from an
administrative warning to termination of a portion of our business.&nbsp; Further,
even if we are subsequently determined to have fully complied with applicable
law or regulation, our costs to achieve such a determination and the
intervening loss of business could adversely affect or even terminate a portion
of our business. Further, a change in such laws or regulations at any time may
have an adverse effect on our operations. Notwithstanding the risks inherent in
our business, management believes that our operations are in compliance with
applicable laws and regulations. </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The FDA regulates our dental and medical products as Class 1, Class 2 and
Class 3 medical devices.&nbsp; The FDA has broad enforcement powers to recall and
prohibit the sale of products that do not comply with federal regulations, and
to order the cessation of non-compliant processes. No claim has been made to
date by the FDA regarding any of our products or processes.&nbsp; Nevertheless, as
is common in the industry, certain of our products and processes have been the subject
of routine governmental reviews and investigations. While our management is
confident that our products and processes fully comply with applicable laws and
regulations, we are unable to predict the outcome of any such investigation or
review, pending its completion. </p>



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<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Management believes that our business in the assembly and distribution of
multi-axis motion control circuit boards, including the processes and
materials, is conducted in a manner consistent with Environmental Protection
Agency (&quot;EPA&quot;) regulations governing disposition of industrial waste materials.
&nbsp;While our management is confident that our products and processes fully comply
with applicable laws and regulations, we are unable to predict the outcome of
any investigation or review which may in the future be undertaken with respect
to our products or processes. </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Management believes that we follow good manufacturing practices for all
of our products at each of its locations. </p>

<p style='text-autospace:none'><b>Patents, Trademarks, and
Licensing Agreements </b></p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>We hold patents relating to multi-axis motion controllers and our miniature
rotary drive products.&nbsp; Our patents have varying expiration dates.&nbsp; The
expiration of the patents is not expected to cause any change in the Company's
revenue generating operations.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>We conducted a limited review of the patents acquired in connection with
the 1995 OMS and Micro Motors acquisitions and believe that the use of such
patents is neither infringed upon by any third party, nor infringes on any
prior art of any third party. We are unable to assess the validity, scope, or
defensibility of our patents, and any challenge to or claim of infringement
relating to our patents could materially and adversely affect our business and
results of operations, although management believes it is more likely than not
for a claim to not have a material and adverse effect on our revenue generating
operations.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>We have certain trademarks relating to our miniature pneumatic motor
products, including Dynatorq&trade;, Dynasurg&trade;, PDL&trade;, and Micro Handpiece&trade;. We have filed
for federal trademark protection for OMS-EZ&trade; and Canaligator&trade;.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>We have not entered into any licensing or franchising agreements for
revenue generating purposes.</p>

<p style='text-align:justify;line-height:normal'><b>RISK FACTORS</b></p>

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

<p style='text-align:justify;line-height:normal'><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i>The
markets for healthcare and factory automation industries are intensely
competitive, and we face significant competition from a number of different
sources.&nbsp; Several of our competitors have significantly greater name
recognition as well as substantially greater financial, technical, product
development and marketing resources than us.</p>

<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We
compete in all of our markets with other major healthcare and factory
automation related companies. Competitive pressures and other factors, such as
new product or new technology introductions by us or our competitors may result
in price or market share erosion that could have a material adverse effect on
the our business, results of operations and financial condition. Also, there
can be no assurance that our products and services will achieve broad market
acceptance or will successfully compete with other products.&nbsp; </p>

<p style='margin-bottom:6.0pt;text-align:justify'><b>Fluctuation
in Quarterly Operating Results</b>&nbsp; </p>

<p style='margin-bottom:6.0pt;text-align:justify'><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i>Our
revenues have fluctuated in the past, and may fluctuate in the future from
quarter to quarter and period to period, as a result of a number of factors
including, without limitation: the size and timing of orders from customers;
the length of new product development cycles; market acceptance of new
technologies; changes in pricing policies or price reductions by us or our
competitors; the timing of new product announcements and product introductions
by us or our competitors; the financial stability of major customers; our
success in expanding our sales and marketing programs; deferrals of customer
orders and deliveries; changes in our strategy; personnel changes; and general
market/economic factors. </p>

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<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Because
a significant percentage of our expenses are relatively fixed, a variation in
the timing of sales can cause significant variations in operating results from
quarter to quarter. As a result, we believe that interim period-to-period
comparisons of our results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Further, our
historical operating results are not necessarily indicative of future
performance for any particular period.&nbsp; </p>

<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Due
to all of the foregoing factors, it is possible that in some future quarter(s)
our operating results may be below the expectations of public market analysts
and investors. In such event, the price of our Common Stock would likely be
materially adversely affected.</p>

<p style='margin-bottom:6.0pt;text-align:justify'><b>Dependence
on Principal Products and New Product Development</b></p>

<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We
currently derive a substantial part of our net revenues from sales of our core
healthcare and factory automation products and services. We believe that a
primary factor in the market acceptance of our product and services is the
value that is created for our customers by those products and services. Our
future financial performance will depend in large part on our ability to
continue to meet the increasingly sophisticated needs of our customers through
the timely development, successful introduction and implementation of new and
enhanced products and services. We have historically expended a significant
percentage of our net revenues on product development and believe that
significant continued product development efforts will be required to sustain
our growth. Continued investment in our sales and marketing efforts will also
be required to support future growth.</p>

<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; There can be no
assurance that we will be successful in our product development efforts, that
the market will continue to accept our existing products, or that new products
or product enhancements will be developed and implemented in a timely manner,
meet the requirements of our customers, or achieve market acceptance. If new
products or product enhancements do not achieve market acceptance, our
business, results of operations and financial condition could be materially
adversely affected.</p>



<p style='margin-bottom:6.0pt;text-align:justify'><b>Technological
Change</b></p>

<p style='margin-bottom:6.0pt;text-align:justify'><b><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i></b>The
healthcare and factory automation markets are generally characterized by rapid
technological change, changing customer needs, frequent new product
introductions, and evolving industry standards. The introduction of products
incorporating new technologies and the emergence of new industry standards
could render the Company's existing products obsolete and unmarketable. There
can be no assurance that we will be successful in developing and marketing new
products that respond to technological changes or evolving industry standards.</p>

<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; New
product development requires significant research and development expenditures
that are ultimately funded by sales growth. Any significant decrease in
revenues or research funding could impair our ability to respond to
technological advances in the marketplace and to remain competitive. If we are
unable, for technological or other reasons, to develop and introduce new
products in a timely manner in response to changing market conditions or
customer requirements, our business, results of operations and financial
condition may be materially adversely affected.</p>

<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In response to
increasing market demand, we are currently developing new products. There can
be no assurance that we will successfully develop these new products or that
these products will operate successfully, or that any such development, even if
successful, will be completed concurrently with or prior to the introduction of
competing products. Any such failure or delay could adversely affect our
competitive position or could make our current products obsolete.</p>







<p style='margin-bottom:6.0pt;text-align:justify'><b>&nbsp;</b></p>

<p align=center style='text-align:center'>-8-</p>

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<p style='margin-bottom:6.0pt;text-align:justify'><b>Litigation</b></p>

<p style='margin-bottom:6.0pt;text-align:justify'><i>&nbsp;</i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We
continually face the possibility of litigation as either a plaintiff or a
defendant.&nbsp; It is not reasonably possible to estimate the awards or damages, or
the range of awards or damages, if any, that we might incur in connection with
such litigation. The uncertainty associated with potential litigation may have
an adverse impact on our business. In particular, such litigation could impair
our relationships with existing customers and our ability to obtain new
customers. Defending or prosecuting such litigation may result in a diversion
of management's time and attention away from business operations, which could
have a material adverse effect on our business, results of operations and
financial condition. </p>

<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; There
can be no assurance that such litigation will not result in liability in excess
of our insurance coverage, that our insurance will cover such claims or that
appropriate insurance will continue to be available to us in the future at
commercially reasonable rates.</p>

<p style='margin-bottom:6.0pt;text-align:justify'><b>Proprietary
Technology </b></p>

<p style='margin-bottom:6.0pt;text-align:justify'><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i>We
are dependent on the maintenance and protection of our intellectual property
and rely on exclusive development and supply agreements, confidentiality
procedures, and employee nondisclosure agreements to protect our intellectual
property. </p>

<p style='text-align:justify;line-height:normal'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; There
can be no assurance that the legal protections and precautions taken by us will
be adequate to prevent misappropriation of our technology or that competitors
will not independently develop technologies equivalent or superior to ours.
Further, the laws of some foreign countries do not protect our proprietary
rights to as great an extent as do the laws of the United States and are often
not enforced as vigorously as those in the United States.</p>

<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We do not believe
that our operations or products infringe on the intellectual property rights of
others. However, there can be no assurance that others will not assert
infringement or trade secret claims against us with respect to our current or
future products or that any such assertion will not require us to enter into a
license agreement or royalty arrangement with the party asserting the claim. </p>

<p style='margin-bottom:6.0pt;text-align:justify'><b>Ability to
Manage Growth</b><i> </i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>

<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We
have in the past experienced periods of growth that have placed, and may
continue to place, a significant strain on our resources. We also anticipate
expanding our overall development, marketing, sales, management and training
capacity as market demand requires.&nbsp; In the event we are unable to identify,
hire, train and retain qualified individuals in such capacities within a
reasonable timeframe, such failure could have a material adverse effect on the
Company. </p>

<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
addition, our ability to manage future increases, if any, in the scope of our
operations or personnel may depend on significant expansion of our research and
development, marketing and sales, management, and administrative and financial
capabilities. The ineffective management of expansion in the business could
have a material adverse effect on our business, results of operations and
financial condition.</p>



<p style='margin-bottom:6.0pt;text-align:justify'><b>Dependence
Upon Key Personnel</b>&nbsp; </p>
<p style='margin-bottom:6.0pt;text-align:justify; text-indent:36pt'>Our future
performance also depends in significant part upon the continued service of our
key technical and senior management personnel, many of who have been with the
Company for a significant period of time.&nbsp; We purchased a one-year term key
man life insurance policy for the president in December 2004, but do not
maintain key man life insurance on any other of our employees. Because we have a
relatively small number of employees when compared to other leading companies in
the same industry, our dependence on maintaining our relationship with key
employees is particularly significant. We are also dependent on our ability to
attract and retain high quality personnel, particularly in the areas of product
development, operations management and finance. </p>

<p align=center style='text-align:center'>-9-</p>

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<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; A
high level of employee mobility and the aggressive recruiting of skilled
personnel characterize the healthcare and motion control industries.&nbsp; There can
be no assurance that our current employees will continue to work for us.&nbsp; Loss
of services of key employees could have a material adverse effect on our
business, results of operations and financial condition. Furthermore, we may
need to grant additional stock options to key employees and provide other forms
of incentive compensation to attract and retain such key personnel.</p>



<p style='margin-bottom:6.0pt;text-align:justify'><b>Product
Liability</b><i> </i></p>

<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We
maintain insurance to protect against claims associated with the use of our
products, but there can be no assurance that our insurance coverage would
adequately cover any claim asserted against us. A successful claim brought
against us in excess of our insurance coverage could have a material adverse
effect on our business, results of operations and financial condition. Even
unsuccessful claims could result in the expenditure of funds in litigation and management
time and resources.</p>

<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; There can be no
assurance that we will not be subject to product liability claims, that such
claims will not result in liability in excess of our insurance coverage, that
our insurance will cover such claims or that appropriate insurance will
continue to be available to us in the future at commercially reasonable rates.
Such claims could have a material adverse affect on our business, results of
operations and financial condition. </p>

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



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We
are subject to changes in and interpretations of financial accounting matters
that govern the measurement of our performance. Based on our reading and interpretations
of relevant guidance, principles or concepts issued by, among other
authorities, the American Institute of Certified Public Accountants, the
Financial Accounting Standards Board, and the United States Securities and
Exchange Commission, our management believes our current sales contract terms
and business arrangements have been properly reported. However, there continue
to be issued interpretations and guidance for applying the relevant standards
to a wide range of contract terms and business arrangements that are prevalent
in the industries in which we operate. Future interpretations or changes by the
regulators of existing accounting standards or changes in our business
practices could result in future changes in our accounting policies and
practices that could have a material adverse effect on our business, financial
condition, cash flows, revenue and results of operations.&nbsp; </p>



<p style='text-align:justify'><b>Internal Controls</b></p>

<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Any weaknesses
identified in our internal controls as part of the evaluation being undertaken
by us and our registered independent public accountants pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on our business.&nbsp; We
are in the process of evaluating and documenting our controls pursuant to
Section 404 of the Sarbanes-Oxley Act.&nbsp; We are working toward being fully compliant
with the requirements of Section 404 of the Sarbanes-Oxley Act at the time it
applies to us.&nbsp; Failure to comply could have a material adverse affect on our
business, financial condition, and our ability to remain listed as a publicly
held exchange traded company.</p>





<p style='text-align:justify'><b>Stock Option Expense<i>&nbsp; </i></b></p>

<p style='text-align:justify; text-indent:36pt'>Stock
options have from time to time been an important component of the compensation
packages for many of our directors and employees.&nbsp; We currently do not deduct
the expense of director or employee stock option grants from our income.&nbsp; As
issued on December 16, 2004, FAS 123 (r) requires companies to change their
accounting policies to record the value of stock options vested as an expense
and a charge against earnings.&nbsp; We are a small business issuer and thus the
rule would require that we comply at the beginning of the first fiscal year after
December 15, 2005, so reports issued for dates after July 1, 2006 will reflect
the change and our reported earnings will be adversely affected. </p>

<p align=center style='text-align:center'>-10-</p>

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<p style='text-autospace:none'><b>Item 2.&nbsp;&nbsp; Description
of Property </b></p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Our executive offices and Santa Ana manufacturing facility are located at
  151 East Columbine Avenue, Santa Ana, California 92707.&nbsp; We lease the 18,000
square foot facility from an unrelated third party at a base monthly lease rate
of $14,000 through July 2006.&nbsp; The building is a two-story stand-alone building
of concrete tilt-up construction, approximately 30 years old and in good
condition.&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Our Beaverton office and manufacturing facility is located at 1800 N.W. 169th Place, Building C100, Beaverton, Oregon 97006.&nbsp; The Company leases the
11,000 square foot facility from an unrelated third party, at a base monthly
lease rate of $9,600 through October 2007.&nbsp; The building is a one-story suite
in a 15-year-old industrial office complex and in good condition.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>&nbsp;Our management believes that the monthly rental rates are comparable to
rents charged for comparable properties in the market area.&nbsp; We believe that
the current facilities are adequate for our expected needs.&nbsp; We believe there
is full compliance with applicable state and EPA environmental standards at
each facility.</p>

<p style='text-autospace:none'><b>Item 3.&nbsp;&nbsp; Legal
Proceedings </b></p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The manufacture and distribution of certain products by us involves a
risk of legal action, and, from time to time, our being named as a defendant in
lawsuits. While our management believes that these matters will not have a
material adverse impact on the financial condition of the Company, there can be
no certainty that we may not ultimately incur liability or that such liability
will not be material and adverse. </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>We are a party to various legal proceedings incidental to our business,
none of which we consider to be material at this time.&nbsp; </p>

<p style='text-autospace:none'><b>Item 4.&nbsp;&nbsp;
Submission of Matters to a Vote of Security Holders </b></p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>No matter was submitted to a vote of our shareholders during the fourth
quarter ended June 30, 2005.&nbsp; </p>
<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>&nbsp;</p>
<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>&nbsp;</p>
<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>&nbsp;</p>
<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>&nbsp;</p>
<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>&nbsp;</p>



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

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



<p style='text-autospace:none'><b>Item 5.&nbsp;&nbsp; Market
for Common Equity, Related Stockholder Matters and Small Business Issuer
Purchases of Equity Securities </b></p>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Our no par value common stock is quoted under the symbol &quot;PDEX&quot;
on the automated quotation system of the National Association of Securities
Dealers SmallCap Market (&quot;NASDAQ&quot;). The following table sets forth
for the quarters indicated the high and low sales prices as reported by
NASDAQ.&nbsp; The quotations reflect inter-dealer prices, without retail markup,
markdown, or commissions, and may not necessarily represent actual
transactions. </p>

<div align=center>

<table class=MsoNormalTable border=0 cellpadding=0
 style='border-collapse:collapse' width="425">
 <tr>
  <td width=190 valign=top style='width:142.2pt;border:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'><b><u>Quarter Ended </u></b></p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'><b><u>High
  </u></b></p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'><b><u>Low
  </u></b></p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top style='width:142.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>September 30, 2003 </p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>2.00
  </p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>1.35
  </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top style='width:142.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>December 31, 2003</p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>3.20
  </p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>1.40
  </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top style='width:142.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>March 31, 2004</p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>3.19
  </p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>2.30
  </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top style='width:142.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>June 30, 2004</p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>2.75
  </p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>1.80
  </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top style='width:142.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>September 30, 2004 </p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>3.18
  </p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>1.86
  </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top style='width:142.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>December 31, 2004</p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>2.92
  </p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>2.50
  </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top style='width:142.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>March 31, 2005</p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>3.30
  </p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>2.67
  </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top style='width:142.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>June 30, 2005</p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>3.56
  </p>
  </td>
  <td width=53 valign=top style='width:39.5pt;border-top:none;border-left:none;
  border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>2.50
  </p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify;text-autospace:none'>On September
19, 2005, the last sale price of our common stock as reported by NASDAQ was $3.49
per share. </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>At June 30, 2005, there were approximately 295 holders of record of our
common stock. This number does not include beneficial owners including holders
whose shares are held in nominee or &quot;street&quot; name.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>We have not paid a cash dividend with respect to our common stock, and have
no present intention to pay cash dividends in the foreseeable future. The
current policy of our Board of Directors is to retain earnings to provide funds
for the operation and expansion of the business.&nbsp; The Board of Directors, in
light of the circumstances then existing, including our earnings and financial
requirements and general business conditions, will determine future dividends.&nbsp;
There are no restrictions associated with our credit line on the Company in
issuing dividends. </p>



<p style='text-autospace:none'><b>Equity Compensation Plan
Information</b></p>



<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='border-collapse:collapse;border:none'>
 <tr>
  <td width=184 valign=top style='width:137.7pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p style='text-autospace:none'>As of June 30, 2005</p>




  <p style='text-autospace:none'>Plan Category</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 5.4pt 0pt 5.4pt'>


  <p align=center style='text-align:center;text-autospace:none'>Number
  of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and
  Rights</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 5.4pt 0pt 5.4pt'>


  <p align=center style='text-align:center;text-autospace:none'>Weighted
  Average Exercise Price of Outstanding Options, Warrants and Rights</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>Number
  of Securities Available for Issuance Under Equity Compensation Plans
  (excluding services reflected in column (a))</p>
  </td>
 </tr>
 <tr>
  <td width=184 valign=top style='width:137.7pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=184 valign=bottom style='width:137.7pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>(a)</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>(b)</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>(c)</p>
  </td>
 </tr>
 <tr>
  <td width=184 valign=top style='width:137.7pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p style='text-autospace:none'>Plans Approved by Stockholders</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  <p align=center style='text-align:center;text-autospace:none'>1,046,816</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  <p align=center style='text-align:center;text-autospace:none'>$1.40</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  <p align=center style='text-align:center;text-autospace:none'>535,545</p>
  </td>
 </tr>
 <tr>
  <td width=184 valign=top style='width:137.7pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p style='text-autospace:none'>Plans Not Approved by
  Stockholders</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;
  163,000</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  <p align=center style='text-align:center;text-autospace:none'>&nbsp;
  1.62</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  <p align=center style='text-align:center;text-autospace:none'>---</p>
  </td>
 </tr>
 <tr>
  <td width=184 valign=top style='width:137.7pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p style='text-autospace:none'>Total</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>1,209,816</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>$1.43</p>
  </td>
  <td width=184 valign=bottom style='width:137.7pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p align=center style='text-align:center;text-autospace:none'>535,545</p>
  </td>
 </tr>
</table>



<p style='text-autospace:none'>The Company made no repurchases
of its securities during the fourth quarter ended June 30, 2005. </p>

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

<p align=center style='text-align:center'>-12-</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-autospace:none'><b>Item 6. Management's
Discussion and Analysis or Plan of Operations </b></p>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The following discussion and analysis provides information that our
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition for each of the two
years ended June 30, 2004 and 2005, 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; Our actual future results could differ
materially from those discussed herein.&nbsp; </p>



<p><b>Critical Accounting Estimates and Judgments</b></p>



<p style='text-align:justify;text-indent:36.0pt'>Our
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States.&nbsp; The preparation of our
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosures.&nbsp; We base our 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.&nbsp;
The significant accounting policies that are believed to be the most critical
to fully understanding and evaluating the reported financial results include
inventory valuations for slow moving items, establishing reserves for valuation
of accounts receivable, 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; We determine our
inventory value at the lower of cost (first-in, first-out method) or market
value and calculate 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 our prior 12-month usage history.&nbsp; If
inventory on hand for a specific part exceeds an estimated 24 months of usage,
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 usage
history, and expected near term usage prospects.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>We determine the reserve for our accounts receivable by examining the
aging of the receivables value.&nbsp; We define &quot;aging&quot; as time passed since the
sale was completed, revenue was recognized and the receivable was established.&nbsp;
If the receivable is aged over 90 days, or has a known collection risk, it is
reserved from 10% of its value up to 100%.&nbsp; The actual amount reserved may
vary depending on account credit and collection history. </p>



<p style='text-indent:36.0pt' align="justify">On July 1, 2002 we 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.An impairment test was completed in
accordance with the requirements of SFAS No. 142, and no impairment charge in 2005
or 2004 was recorded.&nbsp; We prepare our annual impairment testing on April 1 of
each year.&nbsp; </p>
<p style='text-indent:36.0pt' align="justify">&nbsp;As part of the process of
preparing our consolidated financial statements, we are required to estimate our
income taxes in each of the jurisdictions in which we operate.&nbsp; This
process involves 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;
We must then assess the likelihood that the deferred tax assets will be
recovered from future taxable income and, to the extent we believe that recovery
is not likely, a valuation allowance must be established.&nbsp; To the extent we
establish a valuation allowance or increase or decrease this allowance in a
period, the impact will be included in the tax provision in the statement of
operations.</p>



<p align=center style='text-align:center'>-13-</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'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Significant management judgment is required to determine our provision for
income taxes and the recoverability of the deferred tax asset.&nbsp; It is
based on estimates of future taxable income by jurisdictions in which we
operate and the period over which the deferred tax assets will be
recoverable.&nbsp; In the event that actual results differ from these estimates
or we adjust these estimates in future periods, 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>Results of Operations for
Fiscal Year Ended June 30, 2005, Compared to Fiscal Year Ended June 30, 2004 </b></p>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The following table sets forth financial data and the percentage of net
revenues regarding the Company's financial position and operating results. </p>
<div align="left">



<table class=MsoNormalTable border=0 cellpadding=0 width=579
 style='width:740px;margin-left:4.4pt;border-collapse:collapse' id="table2">
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>
  <p class=MsoNormal>(In
  Thousands)</p>
  </td>
  <td colspan=4 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Fiscal Year Ended June 30, </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td colspan=2 valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>2005</p>
  </td>
  <td colspan=2 valign=bottom style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:1.0pt solid black;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>2004</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Net
  sales:</p>
  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;
  13,834&nbsp;</p>
  </td>
  <td width=60 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>100.0%</p>
  </td>
  <td width=89 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;
  14,200&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>100.0%</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Cost of
  sales</p>
  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  6,754&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>48.8%</p>
  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  7,395&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>52.1%</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Gross
  Profit</p>
  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  7,080&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>51.2%</p>
  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  6,805&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>47.9%</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Selling,
  general and administrative expenses</p>
  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  3,048&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>22.0%</p>
  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  3,182&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>22.4%</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Research
  and development costs</p>
  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,740&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>12.6%</p>
  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,790&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>12.6%</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Income
  from Operations</p>
  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,292&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>16.6%</p>
  </td>
  <td width=89 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,833&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>12.9%</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td width=89 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">

  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Net
  interest and other (income)</p>
  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (138)</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>(1.0%)</p>
  </td>
  <td width=89 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (69)</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>(0.5%)</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td width=89 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">

  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Provision
  for Income Taxes</p>
  </td>
  <td width=89 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  581&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>4.2%</p>
  </td>
  <td width=89 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  782&nbsp;</p>
  </td>
  <td width=60 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>5.5%</p>
  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0pt 5.4pt 0pt 5.4pt;height:13.5pt'>
  <p class=MsoNormal>Net
  Income</p>
  </td>
  <td width=89 valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:2.25pt double windowtext; height:13.5pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;
  1,849&nbsp;</p>
  </td>
  <td width=60 valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; height:13.5pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>13.4%</p>
  </td>
  <td width=89 valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:2.25pt double windowtext; height:13.5pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;
  1,120&nbsp;</p>
  </td>
  <td width=60 valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  height:13.5pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>7.9%</p>
  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td width=271 nowrap valign=bottom style='width:203.4pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:13.5pt'>

  </td>
  <td width=89 nowrap valign=bottom style='width:66.6pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:13.5pt'>

  </td>
  <td width=60 nowrap valign=bottom style='width:45.1pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:13.5pt'>

  </td>
  <td width=89 nowrap valign=bottom style='width:66.6pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:13.5pt'>

  </td>
  <td width=60 nowrap valign=bottom style='width:45.1pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:13.5pt'>

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













</div>

<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>Net Sales.</b>&nbsp; Consolidated sales decreased 2.5% for the year ended June 30,
2005, compared to the year ended June 30, 2004, due to decreased dental product
sales as approximately $675,000 of Healozone product sales made in the first
half of 2004 were replaced by a royalty agreement from which income is reported
as below the operating profit line as royalty income.&nbsp; Two other products were
transitioning to next generation designs, so their sales were reduced by over
$400,000 compared to the prior year.&nbsp; Medical sales continued to represent a
majority of the revenue as they comprised 42% of total sales, slightly higher
than the 41% of total sales in 2004.&nbsp; Industrial sales increased significantly
as the semiconductor industry rebounded from its cyclical downturn and we were
able to capitalize on sales outside the semiconductor area.&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 to increased or decreased sales volume, not the effect of these price
changes.&nbsp; Our revenue is derived from four main customer types.&nbsp; The amount of
Pro-Dex total sales to each customer type is noted in the table below:&nbsp;</p>









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

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=570
 style='width:427.55pt;margin-left:-31.3pt;border-collapse:collapse'>
 <tr>
  <td width=216 valign=top style='width:162.05pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>

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

  </td>
  <td width=246 colspan=3 valign=top style='width:184.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;
  padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;
  Fiscal Year ended June 30,<br>
	&nbsp;&nbsp;&nbsp;&nbsp;
  2005&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2004</p>
  </td>
  <td width=96 valign=top style='width:72.0pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>Increase/<br>
	(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=top style='width:162.05pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Dental</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>$</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>3,368,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>$</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>4,578,000</p>
  </td>
  <td width=96 valign=top style='width:72.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>(26%)</p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=top style='width:162.05pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Medical</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0pt 0pt 0pt 0pt'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>5,849,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0pt 0pt 0pt 0pt'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>5,864,000</p>
  </td>
  <td width=96 valign=top style='width:72.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>(0%)</p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=top style='width:162.05pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Industrial</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0pt 0pt 0pt 0pt'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>3,570,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0pt 0pt 0pt 0pt'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>2,533,000</p>
  </td>
  <td width=96 valign=top style='width:72.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'>41%</p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=top style='width:162.05pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Government research and other</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border:none;padding:0pt 0pt 0pt 0pt'>

  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>1,047,000</u></p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border:none;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;</p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'><u>1,225,000</u></p>
  </td>
  <td width=96 valign=top style='width:72.0pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=center style='margin-right:4.5pt;text-align:center;
  text-autospace:none'><u>(15%)</u></p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=top style='width:162.05pt;border:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Total</p>
  </td>
  <td width=12 valign=top style='width:9.0pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>13,834,000</p>
  </td>
  <td width=18 valign=top style='width:13.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='text-align:right;text-autospace:none'>$
  </p>
  </td>
  <td width=114 valign=top style='width:85.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.25pt;text-align:right;
  text-autospace:none'>14,200,000</p>
  </td>
  <td width=96 valign=top style='width:72.0pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>(3%)</p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'><b>Gross Profit </b>The Company's consolidated gross profit for 2005
increased $275,000 or 4% over the gross profit in the previous year despite a
decline in sales as lower margin dental sales were replaced by higher margin
industrial sales.&nbsp; Gross profit as a percentage of sales increased to 51% for
the year ended June 30, 2005 compared to 48% for the year ended June 30, 2004
for the same reasons as noted above and the realization of continued gains from
manufacturing cost improvements.&nbsp; Gross profit and gross profit percentage were
as follows: </p>
<div align="center">













<table class=MsoNormalTable border=0 cellpadding=0 width=440
 style='width:550px;margin-left:4.4pt;border-collapse:collapse' id="table3">
 <tr style='height:12.75pt'>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

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

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

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

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

  </td>
  <td colspan=2 valign=bottom style='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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Fiscal Year ended June 30,</p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">

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

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>2005</p>
  </td>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>2004</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Increase</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Gross
  Profit</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=right style='text-align:right'>$7,080,000</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=right style='text-align:right'>$6,805,000</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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=right style='text-align:right'>4.0%</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Gross
  Profit Percentage</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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=right style='text-align:right'>51.2%</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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=right style='text-align:right'>47.9%</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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=right style='text-align:right'>6.8%</p>
  </td>
 </tr>
</table>











</div>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'><b>Selling, general and administrative costs (S, G&amp;A)</b>.&nbsp; S, G
&amp; A expenses decreased 4.2% to $3,048,000 for the year ended June 30, 2005
from $3,182,000 for year ended June 30, 2004.&nbsp; The decrease is mainly due to a
reduction in legal, insurance and other administrative costs of $234,000 offset
by a $60,000 increase in bad debt allowance and $40,000 in sales and marketing
expenses.&nbsp;&nbsp; S, G &amp; A costs were as follows: </p>
<div align="center">







<table class=MsoNormalTable border=0 cellpadding=0 width=442
 style='width:550px;margin-left:4.4pt;border-collapse:collapse' id="table4">
 <tr style='height:12.75pt'>
  <td width=162 nowrap valign=bottom style='width:121.55pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=107 nowrap valign=bottom style='width:80.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=99 nowrap valign=bottom style='width:74.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=75 nowrap valign=bottom style='width:56.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=162 nowrap valign=bottom style='width:121.55pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td colspan=2 valign=bottom style='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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Fiscal Year ended June 30, </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Increase</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=162 nowrap valign=bottom style='width:121.55pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>2005</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>2004</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>(Decrease)</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=162 nowrap valign=bottom style='width:121.55pt;border:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Selling</p>
  </td>
  <td width=107 nowrap valign=bottom style='width:80.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 957,000 </p>
  </td>
  <td width=99 nowrap valign=bottom style='width:74.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 857,000 </p>
  </td>
  <td width=75 nowrap valign=bottom style='width:56.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>11.7%</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=162 nowrap valign=bottom style='width:121.55pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>General
  and administrative</p>
  </td>
  <td width=107 nowrap valign=bottom style='width:80.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,091,000 </p>
  </td>
  <td width=99 nowrap valign=bottom style='width:74.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 2,325,000 </p>
  </td>
  <td width=75 nowrap valign=bottom style='width:56.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>(10.1%)</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=162 nowrap valign=bottom style='width:121.55pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Total S,
  G&amp;A</p>
  </td>
  <td width=107 nowrap valign=bottom style='width:80.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  3,048,000 </p>
  </td>
  <td width=99 nowrap valign=bottom style='width:74.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;
  3,182,000 </p>
  </td>
  <td width=75 nowrap valign=bottom style='width:56.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>(4.2%)</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=162 nowrap valign=bottom style='width:121.55pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=107 nowrap valign=bottom style='width:80.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=99 nowrap valign=bottom style='width:74.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=75 nowrap valign=bottom style='width:56.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

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





</div>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'><b>Research and development costs</b>.&nbsp; Research and development expenses
decreased $50,000 to $1,740,000 for the year ended June 30, 2005 from
$1,790,000 for the year ended June 30, 2004, a decrease of 3%. The decrease is
due to reduced labor costs related to staffing changes of new product
development group. Company-funded research and development costs were as
follows:</p>
<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=501
 style='width:600px;margin-left:4.4pt;border-collapse:collapse' id="table5">
 <tr style='height:12.75pt'>
  <td width=239 nowrap valign=bottom style='width:179.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Fiscal Year ended June 30,</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=239 nowrap valign=bottom style='width:179.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>2005</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>2004</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Decrease</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=239 nowrap valign=bottom style='width:179.0pt;border:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Research
  and Development Costs</p>
  </td>
  <td width=99 nowrap valign=bottom style='width:74.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=right style='text-align:right'>$1,740,000 </p>
  </td>
  <td width=99 nowrap valign=bottom style='width:74.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=right style='text-align:right'>$1,790,000 </p>
  </td>
  <td width=64 nowrap valign=bottom style='width:48.0pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>(2.8%)</p>
  </td>
 </tr>
</table>





</div>



<p style='text-autospace:ideograph-numeric ideograph-other; text-indent:36pt' align="justify">We
engage in two types of research and development efforts: Company-funded and
customer-funded.&nbsp; Company funded research and development is intended to
develop generic rotary device and multi axis motion control platforms that will
subsequently be utilized to meet the needs of individual customers.&nbsp; In this
initial phase, there are generally no revenues generated and the associated
costs are expensed as incurred.&nbsp; </p>



<p align=center 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:36.0pt'>Customer-funded
research and development effort is the work performed for and funded by
specific customers under the terms of formal research and development
agreements.&nbsp; These efforts are generally for specific applications of the
generic platforms developed by the Company-funded research.&nbsp; These
projects typically take place within six to eighteen months of the generic
development work being completed.&nbsp; We recognize 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
$566,000 and $426,000 in revenue in the fiscal years ended June 30, 2005 and
June 30, 2004, respectively.&nbsp; In the fiscal year ended June 30, 2005, $143,000
was recognized as COS, and $221,000 was recognized as COS in the fiscal year
ended June 30, 2004. &nbsp;&nbsp;The resulting increased margin in 2005 is a result of
the structure, scope and timing of development fees paid under specific
development agreements. &nbsp;</p>



<p style='text-align:justify;text-indent:36.0pt'><b>Income from
Operations</b>.&nbsp; Our consolidated income from operations for the year
ended June 30, 2005 increased to $2,292,000 compared to operating profit of
$1,833,000 for the year ended June 30, 2004.&nbsp; The increase was due to a more
favorable product mix, led by a greater contribution by factory automation
products.&nbsp; Income from operations as a percentage of sales increased to 16.6%
for the year ended June 30, 2005 compared to 12.9% for the year ended June 30,
2004 due to the richer product mix favoring medical products and a significant
increase in the sales of high margin factory automation products combined with
reduced S, G&amp; A spending.&nbsp; Income from operations and margin were as
follows: </p>

<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=480
 style='width:550px;margin-left:4.4pt;border-collapse:collapse' id="table6">
 <tr style='height:12.75pt'>
  <td width=215 nowrap valign=bottom style='width:161.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=107 nowrap valign=bottom style='width:80.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=95 nowrap valign=bottom style='width:71.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=64 nowrap valign=bottom style='width:48.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=215 nowrap valign=bottom style='width:161.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=201 nowrap colspan=2 valign=bottom style='width:151.0pt;border-top:
  solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;border-bottom:none;
  border-right:solid black 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>Fiscal Year ended June 30, </p>
  </td>
  <td width=64 nowrap valign=bottom style='width:48.0pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=215 nowrap valign=bottom style='width:161.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=107 nowrap valign=bottom style='width:80.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>2005</p>
  </td>
  <td width=95 nowrap valign=bottom style='width:71.0pt;border:none;border-right:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>2004</p>
  </td>
  <td width=64 nowrap valign=bottom style='width:48.0pt;border:none;border-right:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>Increase</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=215 nowrap valign=bottom style='width:161.0pt;border:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Income
  from operations</p>
  </td>
  <td width=107 nowrap valign=bottom style='width:80.0pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=right style='text-align:right'>$2,292,000 </p>
  </td>
  <td width=95 nowrap valign=bottom style='width:71.0pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=right style='text-align:right'>$1,833,000 </p>
  </td>
  <td width=64 nowrap valign=bottom style='width:48.0pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=right style='text-align:right'>25.0%</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=215 nowrap valign=bottom style='width:161.0pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Income
  from operations percentage</p>
  </td>
  <td width=107 nowrap valign=bottom style='width:80.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=right style='text-align:right'>16.6%</p>
  </td>
  <td width=95 nowrap valign=bottom style='width:71.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=right style='text-align:right'>12.9%</p>
  </td>
  <td width=64 nowrap valign=bottom style='width:48.0pt;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=right style='text-align:right'>28.4%</p>
  </td>
 </tr>
</table>



</div>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>Royalties
and Other Income. </b>&nbsp;We received $77,000 in royalty payments in the fiscal
year 2005, compared to $98,000 in royalty payments in 2004, as the sales upon
which the royalty is based were reduced. Other income of $40,000 was received
in the year ended June 30, 2005 that consisted primarily of the receipt of a
supplier defective product settlement, compared to the $22,000 that was
received in other income in the year ended June 30, 2004.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'><b>Net Interest Income/Expense. </b>&nbsp;Net interest income was $21,000 in
the year ended June 30, 2005, compared to an expense of $51,000 in the prior
fiscal year due to maintaining cash balances over $2,000,000 throughout the
year and to the reduced balance and rates on the credit line and the payoff of
the net note to a shareholder.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'><b>Income tax provision</b>.&nbsp; Our effective income tax rate is 24% for
the year ended June 30, 2005, compared to 41% for the year ended June 30,
2004.&nbsp; Our effective income tax rate in 2005 was reduced compared to 2004 primarily
due to the reversal of the deferred tax valuation allowance and the utilization
of income tax credits.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>In the year ended June 30, 2001, we recorded a deferred tax valuation
allowance of $227,000.&nbsp; Due to our sustained profitability and the conclusion
of an income tax, this allowance was reversed as of June 30, 2005.&nbsp; Net
realizable deferred tax assets could be reduced if estimates of future
profitability are reduced or if future changes in the ownership of the Company
occur.</p>



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp; As
part of the process of preparing our consolidated financial statements, we are
required to estimate our income taxes in each of the jurisdictions in which we
operate. This process involves estimating our 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 our
consolidated balance sheet.&nbsp; The deferred tax assets result primarily from tax
basis of intangible assets in excess of book basis. We must then assess the
likelihood that our deferred tax assets will be recovered from future taxable
income and to the extent management believes that recovery is not likely, we
must establish a valuation allowance. To the extent a valuation allowance is
either increased or decreased in a period, the impact will be included in the
tax provision in the statement of operations.</p>

<p align=center style='text-align:center'>-16-</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-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Net
Income.&nbsp; </b>We had net income of $1,849,000 or $0.20 per share, basic and $0.19
per share diluted for the year ended June 30, 2005 compared to net income of
$1,120,000 or $0.13 per share, basic and $0.12 per share diluted for the year
ended June 30, 2004.&nbsp; This increase is due to the more profitable product mix
favoring high margin factory automation and medical products, reduced operating
expenses and the reduced tax rate.</p>

<p style='text-autospace:none'><b>Liquidity and Capital
Resources </b></p>

<p style='margin-bottom:6.0pt;text-align:justify'>The following
table presents selected financial statistics and information for the periods
indicated: </p>
<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=477
 style='width:675px;margin-left:4.4pt;border-collapse:collapse' id="table7">
 <tr style='height:12.75pt'>
  <td width=275 nowrap valign=bottom style='width:206.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Year Ending</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Year Ending</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=275 nowrap valign=bottom style='width:206.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>June 30, 2005</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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>June 30, 2004</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=275 nowrap valign=bottom style='width:206.0pt;border:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Cash and
  cash equivalents</p>
  </td>
  <td width=101 nowrap valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>$2,584,000</p>
  </td>
  <td width=101 nowrap valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>$2,070,000</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=275 nowrap valign=bottom style='width:206.0pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Working
  Capital&#185;</p>
  </td>
  <td width=101 nowrap valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>$8,288,000</p>
  </td>
  <td width=101 nowrap valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>$5,795,000</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=275 nowrap valign=bottom style='width:206.0pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Credit
  Line outstanding balance</p>
  </td>
  <td width=101 nowrap valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>$0</p>
  </td>
  <td width=101 nowrap valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>$0</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=275 nowrap valign=bottom style='width:206.0pt;border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1px solid #000000;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Tangible
  book value/common share&#178;</p>
  </td>
  <td width=101 nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:1px solid #000000; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>$1.10</p>
  </td>
  <td width=101 nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:1px solid #000000; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>$0.85</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=275 nowrap valign=bottom style='width:206.0pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Number of
  days of sales outstanding (DSO) in accounts
  receivable at end of quarter&#179;</p>
  </td>
  <td width=101 nowrap valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  75</td>
  <td width=101 nowrap valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  59</td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=275 nowrap valign=bottom style='width:206.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td width=101 nowrap valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">

  </td>
  <td width=101 nowrap 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=275 nowrap valign=bottom style='width:206.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Year Ending</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Year Ending</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=275 nowrap valign=bottom style='width:206.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>June 30, 2005</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>June 30, 2004</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=275 nowrap valign=bottom style='width:206.0pt;border:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Net cash
  provided by operations</p>
  </td>
  <td width=101 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>$557,000</p>
  </td>
  <td width=101 valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal align=right style='text-align:right'>$2,054,000</p>
  </td>
 </tr>
</table>



</div>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'><sup>1</sup> Working Capital = Ending Current Assets balance - Ending
Current liabilities balance</p>



<p style='margin-left:36.0pt;text-align:justify;text-autospace:
none'><sup>2</sup> Tangible book value/common share<sup> </sup>= (Total
shareholders' equity - Goodwill)/(basic outstanding shares)</p>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'><sup>3</sup> DSO = Ending Net Accounts Receivable balance/(Previous
Quarter Sales/91)</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The Company's working capital at June 30, 2005 increased to approximately
$8.3 million compared to approximately $5.8 million at June 30, 2004 as cash
generated from operations was primarily maintained for future investments and
general corporate purposes.&nbsp; Cash flow provided by operations was $557,000 in
the year ended June 30, 2005 compared to $2,054,000 for the year ended June 30,
2004.&nbsp; Cash was provided through continued increasing of profitability levels
and maintaining low expenditure levels and offset by a large increase in
accounts receivable reflecting the higher sales levels at the end of the fiscal
year 2005 and a corresponding inventory build.&nbsp; Management believes that our
working capital needs over the next twelve months can be adequately supported
by current operations.</p>



<p style='text-align:justify;text-indent:36.0pt'>In October
2003, our then existing credit facility with Wells Fargo Business Credit Inc.
was 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 our
eligible accounts receivable.&nbsp; The credit facility expired in October
2004.&nbsp; Its terms required monthly interest payments at the prime rate or LIBOR
(one month to three months) plus 2.75% based on outstanding borrowings, with no
minimum interest charge.&nbsp; The outstanding borrowings under the credit
facility were secured by all assets of, and guaranteed by the Company. </p>



<p style='text-align:justify;text-indent:36.0pt'>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 credit facility
expires in October 2005 and its terms require monthly interest payments at the
prime rate of interest (6.25% at June 30, 2005); or LIBOR plus 2.50% (5.84%
(one month) to 6.02% (three months) at June 30, 2005), based on outstanding
borrowings with no minimum interest charge.&nbsp;&nbsp; The outstanding
borrowings are secured by all assets of, and guaranteed by the Company.&nbsp; There
was no outstanding balance under the terms of this credit facility as of June
30, 2005.&nbsp; The total eligible borrowing capacity at June 30, 2005 was
$2,000,000.</p>

<p align=center style='text-align:center'>-17-</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-autospace:ideograph-numeric ideograph-other; text-indent:36pt' align="justify">There
are certain financial and non-financial covenants that we must meet to be in
compliance with the terms of the October 2004 Wells Fargo credit facility.&nbsp; At
June 30, 2005, we were in compliance with all such covenants.&nbsp; </p>

<p style='margin-top:6.0pt;text-align:justify;text-indent:36.0pt'>At
June 30, 2005, we had cash and cash equivalents of $2,584,000.&nbsp; We believe
that our 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 our working capital and capital expenditure requirements for
the next year.</p>

<p><b>Impact of Inflation and Changing Prices </b></p>

<p style='text-align:justify;line-height:normal'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
industries in which we compete are labor intensive, often involving personnel
with high-level technical or sales skills. Wages and other expenses increase
during periods of inflation and when shortages in the marketplace occur. In
addition, suppliers pass along rising costs to us in the form of higher prices.
To some extent, we have been able to offset increases in operating costs by
increasing charges, expanding services and implementing cost control measures.
Nevertheless, our ability to increase prices is limited by market conditions,
including international competition in many of our markets.</p>

<p style='text-autospace:none'><b>Recent Accounting
Pronouncements</b></p>



<p style='text-align:justify;text-indent:36.0pt;line-height:
normal'>We are subject to the revised requirements of the Statement of
Financial Accounting Standards (&quot;SFAS&quot;) No. 123 (r) &quot;Accounting for Stock-Based
Compensation&quot; as revised December 2004.&nbsp; This standard establishes the
accounting standards for equity compensation, and will apply to us in the
recognition of the cost of stock options awarded based on the grant-date fair
value of those awards.&nbsp; As a small business issuer, the statement is effective
for us at the beginning of the first fiscal year that begins after December 15,
2005. Accordingly we will begin to report the expense of vested stock options
in our report for the quarter ending September 30, 2006. </p>

<p style='text-align:justify;text-indent:36.0pt;line-height:
normal'>We are subject to the revised requirements of the SFAS No. 151
&quot;Inventory Costs - an amendment of ARB No. 43, Chapter 4&quot; as revised November
2004.&nbsp; This standard amends the guidance in ARB No. 43, Chapter 4, Inventory
Pricing,&quot; to clarify the accounting for abnormal amounts of idle facility expense,
freight, handling cost, and wasted material (spoilage).&nbsp; This standard is
effective for us at the beginning of the first fiscal year that begins after
June 15, 2005, which would be our fiscal year ending June 30, 2006.&nbsp; We do not
expect this statement to have a material effect on our operations or reporting.</p>

<p style='text-align:justify;text-indent:36.0pt;line-height:
normal'>We are subject to the revised requirements of the SFAS No. 153
&quot;Exchanges of Nonmonetary Assets - an amendment of APB No. 29 as issued in
December 2004.&nbsp; This standard eliminates the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general exception
for exchanges of nonmonetary assets that do not have commercial substance.&nbsp;
This standard is effective for us at the beginning of the first fiscal year
that begins after June 15, 2005, which would be our fiscal year ending June 30,
2006.&nbsp; We do not expect this statement to have a material effect on our
operations or reporting.</p>

<p style='text-align:justify;line-height:normal'><b>Item
7.&nbsp;&nbsp; Financial Statements</b></p>

<p style='text-align:justify;line-height:normal'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The financial statements and supplemental data of the Company may be found in
this Report on the pages indicated below.</p>

<div align="left">












<table class=MsoNormalTable border=0 cellpadding=0
 style='border-collapse:collapse' width="700">
 <tr>
  <td width=492 valign=top style='width:369.0pt;padding:0pt 0pt 0pt 0pt'>
  <p><u><a href="#Report_of_Independent_Registered_Public_Accounting_Firm___">Report of Independent Registered Public Company
  Accounting Firm&nbsp; </a> </u></p>
  </td>
  <td width=42 valign=top style='width:31.5pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>21
  </p>
  </td>
 </tr>
 <tr>
  <td width=492 valign=top style='width:369.0pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'><a href="#BALANCE_SHEET_">Consolidated
  Balance Sheet &nbsp;</a></p>
  </td>
  <td width=42 valign=top style='width:31.5pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>22
  </p>
  </td>
 </tr>
 <tr>
  <td width=492 valign=top style='width:369.0pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'><u>
	<a href="#CONSOLIDATED_STATEMENTS_OF_OPERATIONS_">Consolidated Statements of
  Operations</a></u></p>
  </td>
  <td width=42 valign=top style='width:31.5pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>23 </p>
  </td>
 </tr>
 <tr>
  <td width=492 valign=top style='width:369.0pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>
	<a href="#CONSOLIDATED_STATEMENTS_OF_SHAREHOLDERS_EQUITY_">Consolidated Statements of Shareholders' Equity
	</a>&nbsp;</p>
  </td>
  <td width=42 valign=top style='width:31.5pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>24
  </p>
  </td>
 </tr>
 <tr>
  <td width=492 valign=top style='width:369.0pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>
	<a href="#CONSOLIDATED_STATEMENTS_OF_CASH_FLOWS_">Consolidated Statements of Cash Flows
	</a>&nbsp;</p>
  </td>
  <td width=42 valign=top style='width:31.5pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>25
  </p>
  </td>
 </tr>
 <tr>
  <td width=492 valign=top style='width:369.0pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>
	<a href="#NOTES_TO_CONSOLIDATED_FINANCIAL_STATEMENTS__">Notes to Consolidated Financial Statements &nbsp;</a></p>
  </td>
  <td width=42 valign=top style='width:31.5pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>26
  </p>
  </td>
 </tr>
</table>

</div>

<p style='text-autospace:none' align="center">-18-</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-autospace:none'><b>Item 8.&nbsp;&nbsp; Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure. </b></p>



<p style='text-align:justify;text-indent:36.0pt'>On October 16,
2003, the Company dismissed McGladrey &amp; Pullen, LLP (&quot;McGladrey&quot;)
as its independent accountant.&nbsp;&nbsp; The reports of McGladrey on the
Company's financial statements for the two fiscal years preceding and through
October 16, 2003 contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles.&nbsp; The Company's decision to change accountants was approved by
its Audit Committee.&nbsp; In connection with its audits for the two fiscal years
preceding and through October 16, 2003, there had been no disagreements with
McGladrey on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if
not resolved to the satisfaction of McGladrey would have caused them to make
reference thereto in their report on the financial statements for such years.&nbsp;
During the two most recent fiscal years and through October 16, 2003, there
have been no reportable events (as defined in Regulation S-B Item
304(a)(1)(iv)).&nbsp;&nbsp; McGladrey furnished the Company with a letter
addressed to the SEC stating that it agrees with the above
statements.&nbsp;&nbsp;&nbsp; The Company's Audit Committee approved the
engagement of Moss Adams, LLP (&quot;Moss Adams&quot;) as its new independent
accountant, for the fiscal year ending June 30, 2004 to replace McGladrey.
During the two fiscal years preceding and through October 16, 2003, the Company
has not consulted with Moss Adams regarding either (i) the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the Company's financial
statements; or (ii) any matter that was either the subject of a disagreement,
as that term is defined in Item 304(a)(1)(iv) of Regulation S-B and the related
instructions to Item 304 of Regulation S-B, or a reportable event, under Item
304(a)(1)(iv) of Regulation S-B. The Company has authorized McGladrey to
respond fully to any inquiries from Moss Adams relating to its engagement as
Company's independent accountant. </p>



<p style='text-autospace:none'><b>Item 8A.&nbsp;&nbsp; Controls
and Procedures.</b></p>

<p style='text-align:justify;text-indent:36.0pt'>The Chief
Executive Officer and Chief Financial Officer (the principal executive officer
and principal financial officer, respectively) have concluded, based on their
evaluation as of June 30, 2005 (&quot;Evaluation Date&quot;), that the design
and operation of the Company's &quot;disclosure controls and procedures&quot;
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended (&quot;Exchange Act&quot;)) are effective to ensure that
information required to be disclosed by the Company in the reports filed or
submitted by the Company under the Exchange Act is accumulated, recorded,
processed, summarized and reported to its management, including its principal executive
officer and its principal financial officer, as appropriate to allow timely
decisions regarding whether or not disclosure is required.</p>



<p style='text-align:justify;text-indent:36.0pt'>During the
quarter ended June 30, 2005, there were no changes in the Company's internal
controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)
under the Exchange Act) that have materially affected, or are reasonably likely
to materially affect, the Company's internal controls over financial reporting.</p>



<p style='text-autospace:none'><b>Item 8B.&nbsp;&nbsp; Other
Information.</b> </p>



<p style='text-align:justify;text-indent:36.0pt'>&nbsp;None.</p>

<p align=center style='text-align:center'>-19-</p>

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

<p style='text-autospace:none'><b>Item 9.&nbsp;&nbsp; Directors,
Executive Officers, Promoters and Control Persons; Compliance With Section
16(A) of the Exchange Act </b></p>

<p style='text-align:justify;text-autospace:none'><b>&nbsp;&nbsp;
</b>&nbsp;&nbsp;&nbsp; Information concerning the Company's Directors and
Executive Officers is incorporated by reference from the information contained
in the Company's definitive Proxy Statement for the Company's 2005 Annual
Meeting of Shareholders to be filed with the SEC within 120 days after the end
of the fiscal year ended June 30, 2005 (the &quot;Proxy Statement&quot;). </p>

<p style='text-autospace:none'><b>Item 10.&nbsp;&nbsp;
Executive Compensation </b></p>

<p style='text-align:justify;text-autospace:none'><b>&nbsp;&nbsp;
</b>&nbsp;&nbsp;&nbsp; Information required by this Item is incorporated by
reference from the section entitled &quot;Compensation of Executive Officers and
Management&quot; contained in the Proxy Statement. </p>



<p style='text-autospace:none'><b>Item 11.&nbsp;&nbsp; Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters</b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Information required
by this Item is incorporated by reference from the section entitled
&quot;Security Ownership of Certain Beneficial Owners and Management&quot;
contained in the Proxy Statement. </p>



<p style='text-autospace:none'><b>Item 12.&nbsp;&nbsp; Certain
Relationships and Related Transactions </b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Information required
by this Item is incorporated by reference from the information contained in the
section entitled &quot;Certain Relationships and Related Transactions&quot;
contained in the Proxy Statement. </p>



<p style='text-autospace:none'><b>Item 13.&nbsp;&nbsp; Exhibits
</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>



<p style='text-autospace:none'>(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; See Exhibit Index</p>

<p style='text-autospace:none'><b>Item 14.&nbsp;&nbsp;
Principal Accountant Fees and Services </b></p>

<p style='text-indent:36.0pt' align="justify">Information required by this
Item is incorporated by reference from the information contained in the section
entitled &quot;Principal Accountant Fees and Services&quot; contained in the
Proxy Statement. </p>
<p style='text-indent:36.0pt'>&nbsp;</p>
<p style='text-indent:36.0pt'>&nbsp;</p>
<p style='text-indent:36.0pt'>&nbsp;</p>





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

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<p align=center style='text-align:center'><b>
<a name="Report_of_Independent_Registered_Public_Accounting_Firm___">Report of
Independent Registered Public Accounting Firm&nbsp; </a> </b></p>





<p><b>To the Stockholders and Board of Directors of Pro-Dex,
Inc.: </b></p>



<p style='text-align:justify;text-indent:24.5pt'>We have
audited the accompanying consolidated balance sheet of Pro-Dex, Inc. and
Subsidiaries (the Company) as of June 30, 2005 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the years in the two-year period ended June 30, 2005. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. </p>



<p style='text-align:justify;text-indent:24.5pt'>We conducted
our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion. </p>



<p style='text-align:justify;text-indent:24.5pt'>In our
opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pro-Dex, Inc. and
Subsidiaries as of June 30, 2005, and the results of their operations and their
cash flows for each of the two years in the two-year period ended June 30, 2005
in conformity with accounting principles generally accepted in the United
States of America. </p>







<p>&nbsp;/s/&nbsp; Moss Adams LLP </p>



<p>Moss Adams LLP <br>
Los Angeles, California <br>
September 6, 2005 </p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p>&nbsp;</p>

<p align=center style='text-align:center'>-21-</p>

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<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=573
 style='width:740px;margin-left:4.4pt;border-collapse:collapse' id="table8">
 <tr style='height:15.75pt'>
  <td colspan=2 valign=bottom style='height:15.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b>PRO-DEX, INC.
  and SUBSIDIARIES</b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=2 valign=bottom style='height:15.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b>
	<a name="BALANCE_SHEET_">BALANCE SHEET</a></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=2 valign=top style='height:15.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b>June 30, 2005</b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=116 nowrap valign=top style='width:86.8pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>
  <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 width=394 nowrap valign=top style='width:295.2pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><b><font size="2">ASSETS</font></b></p>
  </td>
  <td width=116 nowrap valign=top style='width:86.8pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">Current assets:</font></p>
  </td>
  <td width=116 nowrap valign=top style='width:86.8pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Cash and cash equivalents </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,584,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 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 valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  accounts of $100,000 </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,521,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Inventories, net </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,145,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Prepaid expenses </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 66,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Income taxes receivable</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 96,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Deferred income taxes</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 519,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 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 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,931,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 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 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,156,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">Other assets:</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Goodwill</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,110,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Deferred income taxes</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 541,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Other </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 18,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 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 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,669,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:double windowtext 2.25pt;
  border-right:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total assets</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:1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,756,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=bottom style='width:295.2pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><b><font size="2">&nbsp;</font></b></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><b><font size="2">LIABILITIES AND
  SHAREHOLDERS' EQUITY</font></b></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">Current liabilities:</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accounts payable</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,158,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accrued expenses</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 472,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Income taxes payable
	</font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 13,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 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 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,643,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">Long-term liabilities</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  -&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,643,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">Commitments and
  contingencies </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">Shareholders' equity:</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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 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 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,449,396 shares
  issued and outstanding,</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 15,933,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accumulated deficit
	</font> </p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (4,820,000)</font></p>
  </td>
 </tr>
 <tr style='height:9.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:9.75pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total shareholders'
  equity</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 11,113,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:9.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt;height:9.75pt'>

  </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;
  height:9.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:double windowtext 2.25pt;
  border-right:none;padding:0pt 5.4pt 0pt 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:1.0pt solid windowtext;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12,756,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=394 nowrap valign=top style='width:295.2pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

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

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

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

<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=803
 style='width:740px;margin-left:4.4pt;border-collapse:collapse' id="table9">
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='height:15.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b>PRO-DEX, INC.
  and SUBSIDIARIES</b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='height:15.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b>
	<a name="CONSOLIDATED_STATEMENTS_OF_OPERATIONS_">CONSOLIDATED
  STATEMENTS OF OPERATIONS</a></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='height:15.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'><b>Years ended June
  30</b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=289 nowrap valign=top style='width:216.7pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=271 nowrap colspan=2 valign=top style='width:203.35pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'><i>&nbsp;</i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=289 nowrap valign=top style='width:216.7pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=134 nowrap valign=top style='width:100.7pt;border:solid windowtext 1.0pt;
  border-right:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'><i><font size="2">2005</font></i></p>
  </td>
  <td width=137 nowrap valign=top style='width:102.65pt;border:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'><i><font size="2">2004</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='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:0pt; padding-bottom:0pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Net sales </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
	13,834,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 14,200,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Cost of sales </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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  6,754,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  7,395,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Gross profit </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  7,080,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  6,805,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Operating expenses: </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Selling </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  957,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  857,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; General and
  administrative expenses </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,091,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,325,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Research and
  development costs </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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,740,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,790,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Total operating expenses </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  4,788,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  4,972,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Income from operations </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,292,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,833,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Other income (expense): </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Other income, net
	</font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  40,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  22,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Royalty income
	</font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  77,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  98,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Interest income
  (expense), net </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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  21,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(51,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Total</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  138,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  69,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Income before income taxes
  provision</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,430,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,902,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:13.5pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Income taxes provision</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:13.5pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  581,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;782,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Net income</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,849,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,120,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=top style='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:0pt; padding-bottom:0pt' align="right">

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Net Income per share:</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:0pt; padding-bottom:0pt' 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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Basic</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.20&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.13&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Diluted</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.19&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.12&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt' 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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Weighted average shares
  outstanding - basic</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,106,846&nbsp;</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,799,477&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Weighted average shares
  outstanding - diluted</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,650,980&nbsp;</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,327,423&nbsp;</font></p>
  </td>
 </tr>
 </table>

</div>

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

<p align=center style='text-align:center'>-23-</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 align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
<div align="center">
<TABLE width="740" border=0 cellspacing=0 cellpadding=0 id="table10" style="border-style: solid; border-width: 1px; padding-left: 4px; padding-right: 4px; padding-top: 1px; padding-bottom: 1px" bordercolor="#000000">
<TR>
   <TD colspan="17" align="center">
	<p align="center">
<B><font face="serif">PRO-DEX, INC. and SUBSIDIARIES</font></B>
</TD>
</TR>
<TR>
   <TD colspan="17" align="center">
	<p align="center">
<B><FONT face="serif"><a name="CONSOLIDATED_STATEMENTS_OF_SHAREHOLDERS_EQUITY_">CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY</a></FONT></B></TD>
</TR>
<TR>
   <TD colspan="17" align="center">
	<p align="center">
<B><FONT face="serif">Years ended June 30</FONT></B></TD>
</TR>
<TR>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD colspan=3 width="21%" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="2%" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD colspan=4 width="23%" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="2%" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="1%" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="12%" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="1%" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="9%" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="2%" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="1%" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="11%" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR>
   <TD align="center">&nbsp;</TD>
   <TD colspan=3 width="21%" align="center">
	<div style="border-bottom: 1px solid #000000">
		<FONT size=2 face="serif">Preferred Shares</FONT></div>
	</TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD colspan=4 width="23%" align="center">
	<div style="border-bottom: 1px solid #000000">
		<FONT size=2 face="serif">Common Shares</FONT></div>
	</TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="12%" align="center">&nbsp;</TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="9%" align="center">&nbsp;</TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="11%" align="center">&nbsp;</TD>
</TR>
<TR>
   <TD align="center">&nbsp;</TD>
   <TD width="10%" align="center">&nbsp;</TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="10%" align="center">&nbsp;</TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="10%" align="center">&nbsp;</TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="11%" align="center">&nbsp;</TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="12%" align="center">&nbsp;</TD>
   <TD colspan=2 width="10%" align="center"><FONT size=2 face="serif">Receivable</FONT></TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="11%" align="center">&nbsp;</TD>
</TR>
<TR>
   <TD align="center">&nbsp;</TD>
   <TD width="10%" align="center"><FONT size=2 face="serif">Number</FONT></TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="10%" align="center">&nbsp;</TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="10%" align="center"><FONT size=2 face="serif">Number</FONT></TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="11%" align="center">&nbsp;</TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD colspan=2 width="13%" align="center"><FONT size=2 face="serif">Accumulated</FONT></TD>
   <TD colspan=2 width="10%" align="center"><FONT size=2 face="serif">for Stock</FONT></TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="11%" align="center">&nbsp;</TD>
</TR>
<TR>
   <TD align="center">&nbsp;</TD>
   <TD width="10%" align="center"><FONT size=2 face="serif">of Shares</FONT></TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="10%" align="center"><FONT size=2 face="serif">Amount</FONT></TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="10%" align="center"><FONT size=2 face="serif">of Shares</FONT></TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="11%" align="center"><FONT size=2 face="serif">Amount</FONT></TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="12%" align="center"><FONT size=2 face="serif">Deficit</FONT></TD>
   <TD colspan=2 width="10%" align="center"><FONT size=2 face="serif">Purchase</FONT></TD>
   <TD width="2%" align="center">&nbsp;</TD>
   <TD width="1%" align="center">&nbsp;</TD>
   <TD width="11%" align="center"><FONT size=2 face="serif">Total</FONT></TD>
</TR>
<TR>
   <TD>&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">Balance 2003</FONT></TD>
   <TD width="10%" align="right"><FONT size=2 face="serif">78,129&nbsp;</FONT></TD>
   <TD width="1%" align="right"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="10%" align="right"><FONT size=2 face="serif">283,000&nbsp;</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><FONT size=2 face="serif">8,711,600</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">14,999,000</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="12%" align="right"><FONT size=2 face="serif">(7,789,000)</FONT></TD>
   <TD width="1%" align="right"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="9%" align="right"><FONT size=2 face="serif">(51,000)</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">7,442,000</FONT></TD>
</TR>
<TR>
   <TD>&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">Warrants</FONT></TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">exercised</FONT></TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><FONT size=2 face="serif">65,000</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">35,000</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">35,000</FONT></TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">Options</FONT></TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">exercised</FONT></TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><FONT size=2 face="serif">82,000</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">41,000</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">41,000</FONT></TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">Services</FONT></TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">received</FONT></TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><font size="2">-</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><font size="2">-</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right"><FONT size=2 face="serif">26,000&nbsp;</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">26,000</FONT></TD>
</TR>
<TR>
   <TD>&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">Net Income</FONT></TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><font size="2">-</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><font size="2">-</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right"><FONT size=2 face="serif">1,120,000&nbsp;</FONT></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">1,120,000</FONT></TD>
</TR>
<TR>
   <TD>&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">Balance 2004</FONT></TD>
   <TD width="10%" align="right" style="border-bottom: 3px double #000000"><FONT size=2 face="serif">78,129&nbsp;</FONT></TD>
   <TD width="1%" align="right" style="border-bottom: 3px double #000000"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="10%" align="right" style="border-bottom: 3px double #000000"><FONT size=2 face="serif">283,000&nbsp;</FONT></TD>
   <TD width="2%" align="right" style="border-bottom: 3px double #000000">&nbsp;</TD>
   <TD width="10%" align="right" style="border-bottom: 3px double #000000"><FONT size=2 face="serif">8,858,600</FONT></TD>
   <TD width="2%" align="right" style="border-bottom: 3px double #000000">&nbsp;</TD>
   <TD width="1%" align="right" style="border-bottom: 3px double #000000"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="11%" align="right" style="border-bottom: 3px double #000000"><FONT size=2 face="serif">15,075,000</FONT></TD>
   <TD width="2%" align="right" style="border-bottom: 3px double #000000">&nbsp;</TD>
   <TD width="1%" align="right" style="border-bottom: 3px double #000000"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="12%" align="right" style="border-bottom: 3px double #000000"><FONT size=2 face="serif">(6,669,000)</FONT></TD>
   <TD width="1%" align="right" style="border-bottom: 3px double #000000"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="9%" align="right" style="border-bottom: 3px double #000000"><FONT size=2 face="serif">(25,000)</FONT></TD>
   <TD width="2%" align="right" style="border-bottom: 3px double #000000">&nbsp;</TD>
   <TD width="1%" align="right" style="border-bottom: 3px double #000000"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="11%" align="right" style="border-bottom: 3px double #000000"><FONT size=2 face="serif">8,664,000</FONT></TD>
</TR>
<TR>
   <TD>&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">Warrants</FONT></TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">exercised</FONT></TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><FONT size=2 face="serif">99,000</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">107,000</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">107,000</FONT></TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">Options</FONT></TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right"><font size="2">&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">exercised</FONT></TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><FONT size=2 face="serif">413,667</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">468,000</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">468,000</FONT></TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">Services</FONT></TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">received</FONT></TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><font size="2">-</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><font size="2">-</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right"><FONT size=2 face="serif">25,000&nbsp;</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">25,000</FONT></TD>
</TR>
<TR>
   <TD>&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">Preferred Stock</FONT></TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right">&nbsp;</TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">converted</FONT></TD>
   <TD width="10%" align="right"><FONT size=2 face="serif">(78,129)</FONT></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><FONT size=2 face="serif">(283,000)</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><FONT size=2 face="serif">78,129</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">283,000</FONT></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><font size="2">-</font></TD>
</TR>
<TR>
   <TD>&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
   <TD align="right">&nbsp;</TD>
</TR>
<TR>
   <TD><FONT size=2 face="serif">Net Income</FONT></TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="10%" align="right"><font size="2">-</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><font size="2">-</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="12%" align="right"><FONT size=2 face="serif">1,849,000&nbsp;</FONT></TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="9%" align="right"><font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right">&nbsp;</TD>
   <TD width="1%" align="right">&nbsp;</TD>
   <TD width="11%" align="right"><FONT size=2 face="serif">1,849,000</FONT></TD>
</TR>
<TR>
   <TD>&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR>
   <TD style="border-bottom: 1px solid #000000"><FONT size=2 face="serif">Balance 2005</FONT></TD>
   <TD width="10%" align="right" style="border-bottom: 1px solid #000000">
	<font size="2">-&nbsp;</font></TD>
   <TD width="1%" align="right" style="border-bottom: 1px solid #000000"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="10%" align="right" style="border-bottom: 1px solid #000000">
	<font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="10%" align="right" style="border-bottom: 1px solid #000000"><FONT size=2 face="serif">9,449,396</FONT></TD>
   <TD width="2%" align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="1%" align="right" style="border-bottom: 1px solid #000000"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="11%" align="right" style="border-bottom: 1px solid #000000"><FONT size=2 face="serif">15,933,000</FONT></TD>
   <TD width="2%" align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="1%" align="right" style="border-bottom: 1px solid #000000"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="12%" align="right" style="border-bottom: 1px solid #000000"><FONT size=2 face="serif">(4,820,000)</FONT></TD>
   <TD width="1%" align="right" style="border-bottom: 1px solid #000000"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="9%" align="right" style="border-bottom: 1px solid #000000">
	<font size="2">-&nbsp;</font></TD>
   <TD width="2%" align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="1%" align="right" style="border-bottom: 1px solid #000000"><FONT size=2 face="serif">$</FONT></TD>
   <TD width="11%" align="right" style="border-bottom: 1px solid #000000"><FONT size=2 face="serif">11,113,000</FONT></TD>
</TR>
<TR>
   <TD style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="10%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="1%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="10%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="2%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="10%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="2%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="1%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="11%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="2%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="1%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="12%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="1%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="9%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="2%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="1%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</TD>
   <TD width="11%" style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-top-style: none; border-top-width: medium; border-bottom: 1px solid #000000">&nbsp;</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'>-24-</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 cellpadding=0 width=959
 style='width:740px;margin-left:4.4pt;border-collapse:collapse' id="table11">
 <tr style='height:12.75pt'>
  <td colspan=3 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=center style='text-align:center'><b>PRO-DEX, INC.</b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=3 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=center style='text-align:center'><b>
	<a name="CONSOLIDATED_STATEMENTS_OF_CASH_FLOWS_">CONSOLIDATED STATEMENTS OF CASH FLOWS</a></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=3 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=center style='text-align:center'><b>Years ended June 30</b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td colspan=2 valign=top style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><i>&nbsp;</i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

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

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

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

  </td>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=center style='text-align:center'><i><font size="2">2005</font></i></p>
  </td>
  <td valign=top style='border:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=center style='text-align:center'><i><font size="2">2004</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Cash Flows from Operating
  Activities: </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:0pt; padding-bottom:0pt' align="right">

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Net Income</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,849,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,120,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <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 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:0pt; padding-bottom:0pt' align="right">

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Depreciation and
  amortization </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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 348,000&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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 362,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Provision for
  doubtful accounts</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 60,000&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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Reserve for
  obsolete inventory</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (18,000)</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (83,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stock based
  compensation</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 25,000&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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 25,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred taxes</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 521,000&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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 22,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Changes in:</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:0pt; padding-bottom:0pt' align="right">

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Increase)
  in accounts receivable</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1,212,000)</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(760,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <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 inventories</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (585,000)</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 376,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Decrease
  in prepaid expenses</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10,000&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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 38,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <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 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1,000)</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <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 accounts payable and accrued expenses</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 453,000&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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 159,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (Decrease) Increase in income taxes payable</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (893,000)</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 780,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Net Cash provided by
  Operating Activities </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 557,000&nbsp;</font></p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,054,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>

  </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:0pt; padding-bottom:0pt' align="right">

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Cash Flows From Investing
  Activities: </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:0pt; padding-bottom:0pt' align="right">

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Purchases of equipment
  and leasehold improvements</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (474,000)</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (352,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>

  </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:0pt; padding-bottom:0pt' align="right">

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Net Cash provided by (used
  in) Investing Activities </font> </p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (474,000)</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (352,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>

  </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:0pt; padding-bottom:0pt' align="right">

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Cash Flows from Financing
  Activities:</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:0pt; padding-bottom:0pt' align="right">

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Principal payments on long-term debt to shareholder</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (145,000)</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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (71,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Net
  payments on line of credit </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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -
  </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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (432,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Proceeds received from exercise of options and warrants</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 576,000&nbsp;</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;76,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>

  </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:0pt; padding-bottom:0pt' align="right">

  </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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Net Cash provided by (used
  in) Financing Activities</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 431,000&nbsp;</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (427,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Net Increase in Cash and
  Cash Equivalents </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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 514,000&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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,275,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Cash and Cash Equivalents,
  beginning of period </font> </p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,070,000&nbsp;</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 795,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>

  </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:0pt; padding-bottom:0pt' align="right">
  &nbsp;</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:0pt; padding-bottom:0pt' align="right">
  &nbsp;</td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Cash and Cash Equivalents,
  end of period </font> </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,584,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,070,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=3 valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=center style='text-align:center'><i><font size="2">Supplemental Information</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Cash payments for interest</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,000
	</font> </p>
  </td>
  <td valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;51,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:9.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:9.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Cash payments (refunds) for
  income taxes </font> </p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 943,000
	</font> </p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (15,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><i><font size="2">&nbsp;</font></i></p>
  </td>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">Disclosure of non-cash
  financing activities</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' 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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Conversion of
  preferred to common stock</font></p>
  </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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 283,000
	</font> </p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;</font></p>
  </td>
 </tr>
</table>

</div>

<p><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'>-25-</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 align=center style='text-align:center;text-autospace:none'><b>PRO-DEX,
INC. AND SUBSIDIARIES <br>
<a name="NOTES_TO_CONSOLIDATED_FINANCIAL_STATEMENTS__">NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS </a> <br>
June
30, 2005 and 2004</b></p>

<p style='text-autospace:none'><b>NOTE 1 - DESCRIPTION OF
BUSINESS </b></p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Pro-Dex, Inc. is a Colorado corporation that was chartered in 1978, and 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; We
design and manufacture products serving the medical, dental, factory automation
and scientific research markets.&nbsp; Our strategic value proposition is to get
customers to market faster, at a lower total cost and with a higher quality
product.&nbsp; Products developed and manufactured by Pro-Dex are used in
hospitals, dental offices, medical engineering labs, scientific research
facilities and high tech manufacturing operations&nbsp;around the world.&nbsp; </p>



<p style='text-autospace:none'><b>NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES </b></p>



<p style='text-autospace:none'><b>Principles of Consolidation </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiary, Pro-Dex Management, Inc.&nbsp; Pro-Dex Management, Inc. is a
non-operating subsidiary.&nbsp; All significant inter-company accounts and
transactions, if any, have been eliminated.&nbsp;&nbsp; </p>



<p style='text-autospace:none'><b>Basis of Presentation</b></p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The accompanying consolidated financial statements have been prepared in
accordance with accounting principals generally accepted in the United States of America. </p>



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



<p style='text-indent:36.0pt' align="justify">Revenue on product sales is
recognized upon shipment to the customer based on its terms of FOB shipping
point, where the risk of loss and title transfer to the customer.&nbsp; We record
sales in accordance with SEC Staff Accounting Bulletin No. 104, <i>Revenue
Recognition</i>.&nbsp; Under these guidelines, revenue is recognized when all of the
following exist; persuasive evidence that a sale arrangement exists, delivery
of the product has occurred, the price is fixed or determinable, and payment is
reasonably assured.&nbsp; We sell some of our products with a warranty that provides
for repairs or replacement of any defective parts for a period after the sale.
At the time of the sale, the Company accrues an estimate of the cost of
providing the warranty based on prior experience.&nbsp; The Company recognizes
revenue under research and development agreements as certain deliverables are
met as specified in each development contract. </p>



<p style='text-indent:36.0pt' align="justify">&nbsp;The Company recognized
shipping revenue as net sales of $118,000 and $103,000 for the years ended June
30, 2005 and 2004, respectively.&nbsp; The Company recognizes shipping costs as cost
of sales as incurred as a part of the cost of sales.&nbsp; The Company incurred
shipping charges of approximately $79,000 and $89,000 for the years ended June
30, 2005 and 2004, respectively.&nbsp; </p>



<p style='text-autospace:none'><b>Cash and Cash Equivalents </b></p>



<p style='text-indent:36.0pt' align="justify">The Company considers highly
liquid investments with an original maturity of three months or less to be cash
equivalents.</p>



<p style='text-autospace:none'><b>Accounts Receivable </b></p>
<p style='text-autospace:none; text-indent:36pt' align="justify">Trade receivables are carried at original invoice amount less an estimate
made for doubtful accounts based on a review of all outstanding amounts on a
monthly basis.&nbsp; Management determines the allowance for doubtful accounts by
identifying troubled accounts and using historical experience applied to an
aging of accounts.&nbsp; Trade receivables are written off when deemed uncollectible.&nbsp;
Recoveries of trade receivables previously written off are offset against the
allowance when received.</p>
<p style='text-autospace:none; ' align="center">-26-</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-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; A
trade receivable is considered to be past due if any portion of the receivable
balance is outstanding for more than 90 days.&nbsp; Interest is not typically
charged on trade receivables.&nbsp; &nbsp;&nbsp;&nbsp;Changes in allowance for doubtful accounts as
of June 30, 2005 and 2004 were as follows:</p>

<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=455
 style='width:550px;margin-left:.85pt;border-collapse:collapse;border:medium none; '>
 <tr>
  <td width=251 valign=top style='width:188.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>

  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-top:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>2005</u></p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>2004</u></p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:188.5pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Balance at the beginning of
  the year</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 40,000 </p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 30,000 </p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:188.5pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Decrease in doubtful accounts</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>(16,000)</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>---</p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=bottom style='width:188.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Provision charged to income,
  net of recoveries of $0 in 2005, and $0 in 2004 </p>
  </td>
  <td width=102 valign=bottom style='width:76.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>76,000 </u></p>
  </td>
  <td width=102 valign=bottom style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp; &nbsp; 10,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:188.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Balance at the end of the year</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>$&nbsp;&nbsp;&nbsp;&nbsp; 100,000</u></p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>$&nbsp;&nbsp;&nbsp;&nbsp; 40,000</u></p>
  </td>
 </tr>
</table>

</div>



<p style='text-indent:36.0pt;text-autospace:none'>The increase
in the allowance during 2005 was the result of a specific allowance related to
a single customer that exhibited financial difficulties.</p>

<p style='text-autospace:none'><b>Stock Options and Warrants</b></p>



<p style='text-align:justify;text-autospace:none'>Accounting
for Stock-based Compensation</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The Company accounts for stock-based employee compensation under the
requirements of Accounting Principles Board (APB) Opinion No. 25, which does
not require compensation to be recorded if the consideration to be received is
at least equal to the market price of the underlying stock at the measurement
date.&nbsp; Nonemployee stock-based transactions are accounted for under the
requirements of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards (SFAS) No. 123, <i>Accounting for Stock-Based
Compensation</i>, which requires compensation to be recorded based on the fair
value of the securities issued or the services received, whichever is more
reliably measurable.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>SFAS No. 123 and SFAS No. 148 require the disclosure of pro forma net
income and earnings per share had the Company adopted the fair value method.&nbsp;
Under SFAS No. 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully
transferable options with vesting restrictions which significantly differ from
the Company's stock option awards.&nbsp; These models require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated value.&nbsp; The Company's
calculations for the options granted were made using the Black-Scholes
option-pricing model.&nbsp; The calculations are based on a single-option valuation
approach and forfeitures are recognized as they occur.&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The fair value of each grant is estimated at the grant date using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: no dividend rate for all years; price volatility of 55% to 66% in
2005, of 62% to 77% in 2004; risk-free interest rates of approximately 3.3% to 3.8%
in 2005 and 2.5% to 4.0% in 2004; and expected lives of five years.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The following table illustrates the effect on net income and earnings per
share had compensation cost for employee stock-based compensation been
determined based on the grant date fair values of awards for the year ended
June 30, 2005 and 2004, respectively.</p>







<p align=center style='text-align:center'>-27-</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=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=674
 style='width:725px;margin-left:-17.85pt;border-collapse:collapse;
 border:medium none; '>
 <tr>
  <td width=193 valign=top style='width:144.8pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>&nbsp;</td>
  <td width=282 valign=top style='width:211.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width=91 valign=top style='width:68.25pt;border:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p align=center style='text-align:center'>2004</p>
  </td>
 </tr>
 <tr>
  <td width=193 valign=top style='width:144.8pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>Net
  income as reported:</p>
  </td>
  <td width=282 valign=top style='width:211.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp; 1,849,000</p>
  </td>
  <td width=91 valign=top style='width:68.25pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$ 1,120,000</p>
  </td>
 </tr>
 <tr>
  <td width=193 valign=bottom style='width:144.8pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=282 valign=bottom style='width:211.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>Add stock-based
  employee compensation expense included in reported net income, net of related
  tax effects</p>
  </td>
  <td width=108 valign=bottom style='width:81.0pt;border:none;padding:0pt 5.4pt 0pt 5.4pt'>


  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ---</p>
  </td>
  <td width=91 valign=bottom style='width:68.25pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>


  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;---</p>
  </td>
 </tr>
 <tr>
  <td width=193 valign=bottom style='width:144.8pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=282 valign=bottom style='width:211.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>(Deduct) total
  stock-based employee compensation expense determined under fair value based
  method for all awards, net of related tax effects</p>
  </td>
  <td width=108 valign=bottom style='width:81.0pt;border:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (94,000)</u></p>
  </td>
  <td width=91 valign=bottom style='width:68.25pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (70,000)</u></p>
  </td>
 </tr>
 <tr>
  <td width=193 valign=top style='width:144.8pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>Pro-forma net income:</p>
  </td>
  <td width=282 valign=top style='width:211.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p><u>$&nbsp;&nbsp; 1,755,000</u></p>
  </td>
  <td width=91 valign=top style='width:68.25pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p><u>$ 1,050,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=193 valign=top style='width:144.8pt;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=282 valign=top style='width:211.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=91 valign=top style='width:68.25pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
 </tr>
 <tr>
  <td width=193 valign=top style='width:144.8pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>Basic earnings per share:</p>
  </td>
  <td width=282 valign=top style='width:211.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>As reported</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.20</p>
  </td>
  <td width=91 valign=top style='width:68.25pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.13</p>
  </td>
 </tr>
 <tr>
  <td width=193 valign=bottom style='width:144.8pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=282 valign=top style='width:211.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>Pro forma</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.19</p>
  </td>
  <td width=91 valign=top style='width:68.25pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.12</p>
  </td>
 </tr>
 <tr>
  <td width=193 valign=top style='width:144.8pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=282 valign=top style='width:211.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  &nbsp;</td>
  <td width=108 valign=top style='width:81.0pt;border:none;padding:0pt 5.4pt 0pt 5.4pt'>
  &nbsp;</td>
  <td width=91 valign=top style='width:68.25pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  &nbsp;</td>
 </tr>
 <tr>
  <td width=193 valign=top style='width:144.8pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>Diluted earnings per share:</p>
  </td>
  <td width=282 valign=top style='width:211.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>As reported</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.19</p>
  </td>
  <td width=91 valign=top style='width:68.25pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.12</p>
  </td>
 </tr>
 <tr>
  <td width=193 valign=bottom style='width:144.8pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=282 valign=top style='width:211.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>Pro forma</p>
  </td>
  <td width=108 valign=top style='width:81.0pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.18</p>
  </td>
  <td width=91 valign=top style='width:68.25pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.11</p>
  </td>
 </tr>
</table>

</div>

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



<p style='text-align:justify;text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Inventories are stated at the lower of cost (the first-in, first-out method) or
market and consist of the following at June 30, 2005: </p>

<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=393
 style='width:294.8pt;margin-left:-24.25pt;border-collapse:collapse;border:
 none'>
 <tr>
  <td width=243 valign=top style='width:182.3pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Raw materials </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 1,421,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=243 valign=top style='width:182.3pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Work in process </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>409,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=243 valign=top style='width:182.3pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Development costs under
  contract</p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>132,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=243 valign=top style='width:182.3pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Finished goods </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,473,000&nbsp;</u></p>
  </td>
 </tr>
 <tr>
  <td width=243 valign=top style='width:182.3pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp; Total
  </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>3,435,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=243 valign=top style='width:182.3pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Reserve for slow moving items </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (290,000)</u></p>
  </td>
 </tr>
 <tr>
  <td width=243 valign=top style='width:182.3pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp; Total
  inventories, net </p>
  </td>
  <td width=150 valign=top style='width:112.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>$&nbsp;&nbsp; &nbsp; 3,145,000&nbsp;</u></p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify;text-autospace:none'>Changes in
reserve for slow moving inventory as of June 30, 2005 were as follows:</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=353
 style='width:265.0pt;border-collapse:collapse;border:none'>
 <tr>
  <td width=251 valign=top style='width:188.5pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Balance at the beginning of
  the year</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 308,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:188.5pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Increased reserve</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>75,000&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:188.5pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Inventory disposed</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;(93,000)</u></p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:188.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Balance at the end of the year</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>$&nbsp;&nbsp;&nbsp;&nbsp; 290,000&nbsp;</u></p>
  </td>
 </tr>
</table>

</div>



<p>Changes in allowance for warranty expense as of June 30,
2005 and 2004 were as follows:</p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=455
 style='width:341.5pt;margin-left:2.05pt;border-collapse:collapse;border:none'>
 <tr>
  <td width=251 valign=top style='width:188.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>

  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-top:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>2005</u></p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>2004</u></p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:188.5pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Balance at the beginning of
  the year</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 40,000</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 30,000</p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:188.5pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Provision charged to income </p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp; &nbsp; 2,000</u></p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp; &nbsp; 10,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=251 valign=top style='width:188.5pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Balance at the end of the year</p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border:none;border-bottom:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>$&nbsp;&nbsp;&nbsp;&nbsp; 42,000</u></p>
  </td>
  <td width=102 valign=top style='width:76.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>$&nbsp;&nbsp;&nbsp;&nbsp; 40,000</u></p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>General warranty expense for the years ended June 30, 2005 and June 30,
2004 was $72,000 and $50,000 respectively.&nbsp; The increase was due to a temporary
increase in labor associated with warranty repairs associated with a specific
customer request.&nbsp;&nbsp; </p>

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

<p align=center style='text-align:center'>-28-</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-autospace:none'><b>Equipment and Leasehold
Improvements</b></p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Equipment and
leasehold improvements are recorded at cost and consist of the following: </p>



<div align=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=360
 style='width:500px;border-collapse:collapse;border:medium none; '>
 <tr>
  <td width=210 valign=bottom style='width:157.75pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Equipment </p>
  </td>
  <td width=150 valign=bottom style='width:112.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>$&nbsp;&nbsp;&nbsp;&nbsp; 3,559,000 </p>
  </td>
 </tr>
 <tr>
  <td width=210 valign=bottom style='width:157.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Leasehold Improvements</p>
  </td>
  <td width=150 valign=bottom style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp;&nbsp; &nbsp; 453,000 </u></p>
  </td>
 </tr>
 <tr>
  <td width=210 valign=bottom style='width:157.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Total Cost </p>
  </td>
  <td width=150 valign=bottom style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:4.5pt;text-align:right;
  text-autospace:none'>4,012,000 </p>
  </td>
 </tr>
 <tr>
  <td width=210 valign=bottom style='width:157.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>

  </td>
  <td width=150 valign=bottom style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td width=210 valign=bottom style='width:157.75pt;border:none;border-left:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Accumulated Depreciation</p>
  </td>
  <td width=150 valign=bottom style='width:112.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'><u>&nbsp;&nbsp; (2,856,000) </u></p>
  </td>
 </tr>
 <tr>
  <td width=210 valign=bottom style='width:157.75pt;border-top:none;border-left:
  solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;border-right:
  none;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Total Equipment and leasehold
  improvements, net </p>
  </td>
  <td width=150 valign=bottom style='width:112.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=right style='margin-right:3.5pt;text-align:right;
  text-autospace:none'><u>$&nbsp;&nbsp;&nbsp; 1,156,000 </u></p>
  </td>
 </tr>
</table>

</div>



<p style='text-indent:36.0pt;text-autospace:none' align="justify">Depreciation
is provided using the straight-line method over the estimated useful lives of
the assets as follows: equipment -- 3-10 years; leasehold improvements are
depreciated over the shorter of the term of the lease or their estimated useful
lives.</p>

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



<p style='text-align:justify;text-indent:36.0pt'>On July 1,
2002 we 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:36.0pt'>In accordance
with the requirements of SFAS No. 142, we performed impairment tests and
recorded no impairment charges in fiscal years ended June 30, 2004 or 2005.&nbsp; We
prepare our annual impairment testing on April 1 of each year.&nbsp; We have
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,
2005 was impaired.&nbsp; Additionally, during the quarter ended June 30, 2005,
management determined that there were no events or circumstances which have
occurred, that would indicate an impairment of the goodwill had occurred.</p>



<p style='text-autospace:ideograph-numeric ideograph-other'><b>Stock Repurchase Plan</b></p>



<p style='text-align:justify;text-indent:36.0pt'>In September
2002, the Company's Board of Directors authorized the repurchase on the open
market of up to 500,000 shares of the Company's outstanding Common Stock, subject
to compliance with applicable laws and regulations.&nbsp; There is no
requirement that the Company repurchase all or any portion of such
shares.&nbsp; The maximum total value of the repurchase is not to exceed
$500,000.&nbsp; The maximum price per share that can be paid is $1.25.&nbsp;
The repurchase is to be financed 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 the
twelve months ended June 30, 2004 and 2005.&nbsp; The stock repurchase plan is currently
inactive as the market value per common share has remained above $1.25.</p>



<p><b>Income Taxes</b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred income taxes are provided on a
liability method whereby deferred tax assets are recognized for deductible
temporary differences, operating losses, and tax credit carry forwards.
Deferred tax liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. 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. </p>

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

<p align=center style='text-align:center'>-29-</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-autospace:none'><b>Use of Estimates</b></p>



<p style='text-indent:36.0pt' align="justify">The preparation of financial
statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. </p>



<p style='text-indent:36.0pt' align="justify">The Company's operations are
affected by numerous factors including market acceptance, changes in
technologies and new laws and government regulations and policies. The Company
cannot predict what impact, if any, the occurrence of these or other events
might have on the Company's operations. Significant estimates and assumptions
made by management are used for, but not limited to, the allowance for doubtful
accounts, the reserve for slow moving or obsolete inventories, the carrying
value of long-lived and intangible assets, goodwill, and the recoverability of
deferred tax assets.</p>



<p style='text-indent:36.0pt' align="justify">Significant management judgment
is required to determine the provision for income taxes and the recoverability
of deferred tax assets. It is based on estimates of future taxable income by
jurisdiction in which the Company operates and the period over which deferred
tax assets will be recoverable.&nbsp; In the event that actual results differ from
these estimates or adjustments are made to these estimates in future periods,
there may need to be an adjustment in the valuation allowance, which could
result in an additional tax provision up to the net carrying value of the
deferred tax assets.</p>

<p style='text-autospace:none'><b>Earnings per Share</b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Basic earnings per common share data has been
computed on the basis of the weighted-average number of common shares
outstanding during each period presented.&nbsp; Diluted per share amounts assume the
conversion, exercise or issuance of all potential common stock instruments unless
the effect is to increase the income per common share from continuing
operations. </p>

<p style='text-autospace:none'><b>Fair Value of Financial
Instruments</b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The method and assumptions used to estimate
the fair value of notes payable, if any, which approximates the carrying value,
is based on interest rates for instruments with similar terms and remaining
maturities. </p>



<p style='text-autospace:none'><b>Research and Development </b></p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Research and development expenses decreased $50,000 to $1,740,000 for the
year ended June 30, 2005 from $1,790,000 for the year ended June 30, 2004, a
decrease of 2.8%. The decrease is due to a moderation of new product
development in the medical and dental product lines and continuing investment
in support of motion control system product line extensions as our efforts were
expended in supporting the current lines.&nbsp; Company-funded research and
development costs were as follows</p>
<div align="center">



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=501
 style='width:376.0pt;margin-left:4.4pt;border-collapse:collapse' id="table15">
 <tr style='height:12.75pt'>
  <td width=239 nowrap valign=bottom style='width:179.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=199 nowrap colspan=2 valign=bottom style='width:149.0pt;border-top:
  solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;border-bottom:none;
  border-right:solid black 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>Fiscal Year ended June 30,</p>
  </td>
  <td width=64 nowrap valign=bottom style='width:48.0pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=239 nowrap valign=bottom style='width:179.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=99 nowrap valign=bottom style='width:74.5pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>2005</p>
  </td>
  <td width=99 nowrap valign=bottom style='width:74.5pt;border:none;border-right:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>2004</p>
  </td>
  <td width=64 nowrap valign=bottom style='width:48.0pt;border:none;border-right:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>Decrease</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=239 nowrap valign=bottom style='width:179.0pt;border:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Research
  and Development Costs</p>
  </td>
  <td width=99 nowrap valign=bottom style='width:74.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=right style='text-align:right'>$1,740,000 </p>
  </td>
  <td width=99 nowrap valign=bottom style='width:74.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=right style='text-align:right'>$1,790,000 </p>
  </td>
  <td width=64 nowrap valign=bottom style='width:48.0pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal align=center style='text-align:center'>(2.8%)</p>
  </td>
 </tr>
</table>





</div>



<p style='text-autospace:ideograph-numeric ideograph-other' align="justify">We
engage in two types of research and development efforts: Company-funded and
customer-funded.&nbsp; Company funded research and development is intended to
develop generic rotary device and multi axis motion control platforms that will
subsequently be utilized to meet the needs of individual customers.&nbsp; In this
initial phase, there are generally no revenues generated and the associated
costs are expensed as incurred.&nbsp; </p>



<p align=center style='text-align:center'>-30-</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:36.0pt'>Customer-funded
research and development effort is the work performed for and funded by
specific customers under the terms of formal research and development
agreements.&nbsp; These efforts are generally for specific applications of the
generic platforms developed by the Company-funded research.&nbsp; These
projects typically take place within twelve months of the generic development
work being completed.&nbsp; We recognize 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 $566,000 and $426,000 in
revenue in the fiscal years ended June 30, 2005 and June 30, 2004,
respectively.&nbsp; In the fiscal year ended June 30, 2005, $143,000 was recognized
as COS, and $221,000 was recognized as COS in the fiscal year ended June 30,
2004.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>



<p style='text-indent:36.0pt' align="justify">The disclosure of customer
names, project status and economic impact of projects that are fundamental to
the Company's business strategy is prohibited in many cases by confidentiality
agreements.</p>



<p style='text-autospace:none'><b>NOTE 3 - LINE OF CREDIT </b></p>

<p style='text-align:justify;text-indent:36.0pt'>In October
2003, our then existing credit facility with Wells Fargo Business Credit Inc.
was 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 our
eligible accounts receivable.&nbsp; The credit facility expired in October
2004.&nbsp; Its terms required monthly interest payments at the prime rate or LIBOR
(one month to three months) plus 2.75% based on outstanding borrowings, with no
minimum interest charge.&nbsp; The outstanding borrowings under the credit
facility were secured by all assets of, and guaranteed by the Company. </p>



<p style='text-align:justify;text-indent:36.0pt'>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 credit facility
expires in October 2005 and its terms require monthly interest payments at our
choice of the prime rate of interest (6.25% at June 30, 2005); or LIBOR plus
2.50% (5.84% (one month) to 6.02% (three months) at June 30, 2005), based on
outstanding borrowings with no minimum interest charge.&nbsp;&nbsp; The
outstanding borrowings are secured by all assets of, and guaranteed by the
Company.&nbsp; There was no outstanding balance under the terms of this credit
facility as of June 30, 2005.&nbsp; The total eligible borrowing capacity at
June 30, 2005 was $2,000,000.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>There are certain financial and non-financial covenants that we must meet
to be in compliance with the terms of the October 2004 Wells Fargo credit
facility.&nbsp; At June 30, 2005, we were in compliance with all such
covenants.&nbsp;</p>



<p style='text-autospace:none'><b>NOTE 4 - LONG TERM DEBT TO
SHAREHOLDER</b>&nbsp;&nbsp;&nbsp;&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Long-term debt was comprised of a Not to Compete liability under the
terms of a Noncompetition Agreement with a shareholder offset by a Note
Receivable asset from the same shareholder.&nbsp; The interest rate on both was 7%
annually.&nbsp; The Note was collateralized by the Not to Compete liability and was
subordinated to the line of credit with Wells Fargo.&nbsp; </p>

<p style='text-align:justify;text-indent:36.0pt;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>NOTE 5 - COMMITMENTS AND
CONTINGENCIES </b></p>
<p style='text-autospace:none; text-indent:36pt' align="justify">The Company leases its existing
office and warehouse facilities.&nbsp; The Santa Ana lease expires in July 2006 and
the Beaverton lease expires in October 2007.&nbsp; These leases generally require
the Company to pay insurance, taxes, and other expenses related to the leased
space.&nbsp; Total rent expense in 2005 and 2004 was $303,000 and $265,000,
respectively.&nbsp; Future minimum lease payments for the fiscal years ending June
30 are: </p>










<div align="center">



<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='margin-left:0pt;border-collapse:collapse;border:none' width="241" id="table16">
 <tr style='height:10.75pt'>
  <td width=96 valign=top style='width:72.0pt;border:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt;height:10.75pt'>
  2006</td>
  <td 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:10.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  &nbsp;$297,000</td>
 </tr>
 <tr>
  <td width=96 valign=top style='width:72.0pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>
  2007</td>
  <td valign=top style='border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p style='margin-right:0pt'>&nbsp;&nbsp;&nbsp;113,000</p>
  </td>
 </tr>
 <tr>
  <td width=96 valign=top style='width:72.0pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>
  2008</td>
  <td valign=top style='border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  &nbsp;<u>&nbsp;&nbsp;&nbsp;38,000</u></td>
 </tr>
 <tr>
  <td width=96 valign=top style='width:72.0pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>
  Total</td>
  <td valign=top style='border-top:medium none;border-left:medium none;
  border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <u>&nbsp;$448,000</u></td>
 </tr>
</table>

</div>

<p style='text-autospace:none' align="center">-31-</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-autospace:none' align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Our manufacture and distribution of certain products involves a risk of
legal action, and, from time to time, we are named as defendants in lawsuits.
While our management believes that these matters will not have a material
adverse impact on our financial condition, it is not reasonably possible to
estimate the awards or damages, or the range of awards or damages, if any, we
might incur in connection with such litigation.</p>

<p style='text-autospace:none'><b>NOTE 6 - Income Taxes </b></p>



<p style='text-indent:36.0pt;text-autospace:none'>The income
taxes provisions for the years ended June 30, 2005 and 2004 are as follows: </p>
<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=380
 style='width:600px;margin-left:4.4pt;border-collapse:collapse' id="table12">
 <tr style='height:12.75pt'>
  <td width=103 nowrap valign=bottom style='width:77.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=76 nowrap valign=bottom style='width:57.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Fiscal Year ended June 30, </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=103 nowrap valign=bottom style='width:77.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td width=76 nowrap valign=bottom style='width:57.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>2005</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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>2004</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=103 nowrap valign=bottom style='width:77.0pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Current:</p>
  </td>
  <td width=76 nowrap valign=bottom style='width:57.0pt;border:none;border-top:
  solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td width=107 nowrap valign=bottom style='width:79.95pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td width=95 nowrap valign=bottom style='width:71.05pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=103 nowrap valign=bottom style='width:77.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td width=76 nowrap valign=bottom style='width:57.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>
  <p class=MsoNormal>Federal</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  69,000&nbsp;</p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  689,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=103 nowrap valign=bottom style='width:77.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td width=76 nowrap valign=bottom style='width:57.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>
  <p class=MsoNormal>State</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (9,000)</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  71,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=103 nowrap valign=bottom style='width:77.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Deferred:</p>
  </td>
  <td width=76 nowrap valign=bottom style='width:57.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=103 nowrap valign=bottom style='width:77.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td width=76 nowrap valign=bottom style='width:57.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>
  <p class=MsoNormal>Federal</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  472,000&nbsp;</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (42,000)</p>
  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td width=103 nowrap valign=bottom style='width:77.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:13.5pt'>

  </td>
  <td width=76 nowrap valign=bottom style='width:57.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:13.5pt'>
  <p class=MsoNormal>State</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  49,000&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;
  height:13.5pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;64,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=179 nowrap colspan=2 valign=bottom style='width:134.0pt;border-top:
  none;border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Provision
  for Income taxes</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><u>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  581,000&nbsp;</u></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><u>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  782,000&nbsp;</u></p>
  </td>
 </tr>
</table>





</div>



<p align=center style='text-align:center;text-indent:36.0pt;
text-autospace:none'>&nbsp;</p>



<p>A reconciliation of expected tax to the amount
computed by applying the federal statutory income tax rates to income before
income taxes is as follows: </p>
<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=523
 style='width:675px;margin-left:0pt;border-collapse:collapse' id="table13">
 <tr style='height:12.75pt'>
  <td width=321 nowrap valign=bottom style='width:241.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>Fiscal Year ended June 30, </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=321 nowrap valign=bottom style='width:241.0pt;padding:0pt 5.4pt 0pt 5.4pt;
  height:12.75pt'>

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>2005</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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p class=MsoNormal align=center style='text-align:center'>2004</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=321 nowrap valign=bottom style='width:241.0pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td width=107 nowrap valign=bottom style='width:80.55pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
  <td width=94 nowrap valign=bottom style='width:70.45pt;border:none;
  border-right:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=321 nowrap valign=bottom style='width:241.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Federal
  income tax at the statutory rate</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  826,000&nbsp;</p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  666,000 </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=321 nowrap valign=bottom style='width:241.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Change in
  valuation allowance for deferred tax assets</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (227,000)</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  -&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=321 nowrap valign=bottom style='width:241.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Tax
  Credits</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(98,000)</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  -&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=321 nowrap valign=bottom style='width:241.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>State
  Income taxes, net of federal tax benefit</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  77,000&nbsp;</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  88,000 </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=321 nowrap valign=bottom style='width:241.0pt;border:none;
  border-left:solid windowtext 1.0pt;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Non-deductable
  items</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  6,000&nbsp;</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  4,000 </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=321 nowrap valign=bottom style='width:241.0pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Other</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (3,000)</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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  24,000 </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=321 nowrap valign=bottom style='width:241.0pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0pt 5.4pt 0pt 5.4pt;height:12.75pt'>
  <p class=MsoNormal>Provision
  for Income taxes</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><u>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  581,000&nbsp;</u></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><u>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  782,000 </u></p>
  </td>
 </tr>
</table>



</div>



<p style='text-indent:36.0pt;text-autospace:none'>Deferred
income tax assets and liabilities in the accompanying consolidated balance
sheet at June 30, 2004 and 2005 are as follows: </p>

<p align=center style='text-align:center'>-32-</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="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=450
 style='width:650px;margin-left:4.4pt;border-collapse:collapse' id="table14">
 <tr style='height:12.75pt'>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

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

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=center style='text-align:center'>Fiscal Year ended June 30, </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

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

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=center style='text-align:center'>2005</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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal align=center style='text-align:center'>2004</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='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:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=2 valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Deferred
  tax assets</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

  </td>
  <td 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:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Accrued
  expenses</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  154,000&nbsp;</p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  127,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Inventories</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  198,000&nbsp;</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  199,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Intangible
  assets</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  793,000&nbsp;</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  893,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Net
  operating loss carry forwards</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;&nbsp;
  </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  60,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Income
  tax credit carry forwards</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  176,000&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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  633,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=2 valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Total
  deferred tax assets</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,321,000&nbsp;</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,912,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=2 valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Valuation
  allowance</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  -&nbsp;&nbsp; </p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (227,000)</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=2 valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Deferred
  tax assets, net</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,321,000&nbsp;</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,685,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

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

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=2 valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Deferred
  tax liabilities</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>State
  taxes</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (119,000)</p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;$&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  -&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Depreciation</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (142,000)</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;
  height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (104,000)</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=2 valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Total
  deferred tax liabilities</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (261,000)</p>
  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (104,000)</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom 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:0pt; padding-bottom:0pt'>

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

  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">

  </td>
  <td 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:0pt; padding-bottom:0pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=2 valign=bottom 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:0pt; padding-bottom:0pt'>
  <p class=MsoNormal>Net
  Deferred tax assets</p>
  </td>
  <td valign=bottom 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:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><u>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,060,000&nbsp;</u></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; height:12.75pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p class=MsoNormal><u>&nbsp;$&nbsp;&nbsp;&nbsp;
  1,581,000&nbsp;</u></p>
  </td>
 </tr>
</table>





</div>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The Company has state net operating loss carry forwards of $0 and
$1,102,000 for June 30, 2005 and 2004, respectively.&nbsp; The Company has tax
credits of $176,000 and $213,000 for June 30, 2005 and 2004, respectively that can
be carried forward indefinitely until fully utilized.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The Company maintained a valuation allowance to reduce certain deferred
tax assets to amounts that are more likely than not to be realized. In the year
ending June 30, 2005, the Company reversed its valuation allowance for these
deferred tax assets due to our sustained profitability and a conclusion of an
income tax audit.&nbsp; Management believes that it is more likely than not that all
deferred tax assets will be realized.</p>

<p style='text-autospace:none'><b>NOTE 7 - SHAREHOLDERS' EQUITY
</b></p>

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



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The Board of Directors and the shareholders of the Company have approved
and adopted two stock option plans, pursuant to which options to purchase an
aggregate of 2,000,000 shares of common stock that may be granted to officers,
directors, and employees of the Company. There are 535,545 shares remaining in
the option plans at June 30, 2005 that are available for grant in future
years.&nbsp; Transactions involving the Company's stock options for the years ended
June 30, 2005 and 2004 are summarized as follows: </p>



<div align=center>

<table class=MsoNormalTable border=0 cellpadding=0
 style='margin-left:-1.0pt;border-collapse:collapse' width="725">
 <tr>
  <td width=216 valign=top style='width:162.0pt;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0pt 0pt 0pt 0pt'>

  </td>
  <td width=210 colspan=2 valign=top style='width:157.5pt;border:none;
  border-top:solid windowtext 1.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2005&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </u></p>
  </td>
  <td width=234 colspan=2 valign=top style='width:175.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2004&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </u></p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;</p>
  <p align=center style='text-align:center;text-autospace:none'><u>Fixed
  Options </u></p>
  </td>
  <td width=84 valign=bottom style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;</p>
  <p align=center style='text-align:center;text-autospace:none'><u>Shares
  </u></p>
  </td>
  <td width=126 valign=bottom style='padding:0pt; '>
  <p align=center style='text-align:right;text-autospace:none'>Weighted-Average<br>
	<u>Exercise
  Price </u>
  &nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=96 valign=bottom style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;</p>
  <p align=center style='text-align:center;text-autospace:none'><u>Shares
  </u></p>
  </td>
  <td width=138 valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding:0pt; '>
  <p align=center style='text-align:right;text-autospace:none'>Weighted-Average<br>
	<u>Exercise
  Price</u>
  &nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>
  <p style='text-autospace:none'>Outstanding at beginning of
  year </p>
  </td>
  <td valign=bottom style='padding:0pt; ' align="right">
  <p style='text-autospace:none'>1,441,405&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='padding:0pt; ' align="right">
  <p style='text-autospace:none'>$1.24&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='padding:0pt; ' align="right">
  <p style='text-autospace:none'>1,363,405&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p style='text-autospace:none'>$1.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp; Granted </p>
  </td>
  <td valign=bottom style='padding:0pt; ' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;
  150,000 &nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='padding:0pt; ' align="right">
  <p style='text-autospace:none'>2.52&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='padding:0pt; ' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;
  185,000&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p style='text-autospace:none'>1.82&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp; Exercised </p>
  </td>
  <td valign=bottom style='padding:0pt; ' align="right">
  <p style='text-autospace:none'>&nbsp;
  &nbsp;(413,667) &nbsp;</p>
  </td>
  <td valign=bottom style='padding:0pt; ' align="right">
  <p style='text-autospace:none'>1.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='padding:0pt; ' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;
  (82,000)&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p style='text-autospace:none'>0.50&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp; Forfeited </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p style='text-autospace:none'>&nbsp;
  &nbsp;(130,922) &nbsp;</p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p style='text-autospace:none'>1.42&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;
  (25,000)&nbsp;&nbsp;&nbsp;&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:0pt; ' align="right">
  <p style='text-autospace:none'>1.16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'>Outstanding
  at end of year </p>
  </td>
  <td valign=bottom style='border:medium none;padding:0pt; ' align="right">
  <p style='text-autospace:none'>1,046,816&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='border:medium none;padding:0pt; ' align="right">
  <p style='text-autospace:none'>$1.40&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='border:medium none;padding:0pt; ' align="right">
  <p style='text-autospace:none'>1,441,405&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p style='text-autospace:none'>$1.24&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>

  </td>
  <td colspan=4 valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding:0pt; ' align="right">

  </td>
 </tr>
 <tr style='height:18.0pt'>
  <td width=216 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>
  <p style='text-autospace:none'>Exercisable at end of year </p>
  </td>
  <td valign=bottom style='padding:0pt;
  ' align="right">
  <p style='text-autospace:none'>823,691&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='padding:0pt;
  ' align="right">
  <p style='text-autospace:none'>$1.37&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='padding:0pt;
  ' align="right">
  <p style='text-autospace:none'>1,023,955&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p style='text-autospace:none'>$1.28&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=216 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>
  <p style='text-autospace:none'>Weighted-average fair value
  per </p>
  </td>
  <td valign=bottom style='padding:0pt; ' align="right">

  </td>
  <td valign=bottom style='padding:0pt; ' align="right">

  </td>
  <td valign=bottom style='padding:0pt; ' align="right">

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

  </td>
 </tr>
 <tr style='height:14.4pt'>
  <td width=216 valign=bottom style='border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;border-right:
  medium none;padding:0pt;'>
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp; Option
  granted during the year </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p style='text-autospace:none'><u>$1.40</u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">

  </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:0pt;' align="right">
  <p style='text-autospace:none'><u>$1.07</u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
</table>

</div>



<p align=center style='text-align:center'>-33-</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-autospace:none'>A further summary concerning
fixed options outstanding June 30, 2005, is as follows: </p>



<div align=center>

<table class=MsoNormalTable border=0 cellpadding=0
 style='border-collapse:collapse' width="650">
 <tr>
  <td valign=top style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding:0pt; '>

  </td>
  <td colspan=3 valign=top style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Options
  Outstanding&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </u></p>
  </td>
  <td colspan=2 valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Options Exercisable&nbsp;</u></p>
  </td>
 </tr>
 <tr>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>


  <p align=center style='text-align:center;text-autospace:none'>Range
  of <br>
	<u>Exercise
  Price </u> </p>
  </td>
  <td valign=bottom style='padding:0pt; '>


  <p align=center style='text-align:center;text-autospace:none'>Number
  <br>
	<u>Outstanding
  </u>
  </p>
  </td>
  <td valign=bottom style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'>Weighted-
  <br>
	Average
  <br>
	Remaining
  <br>
	<u>Contractual
  Life </u>
  </p>
  </td>
  <td valign=bottom style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'>Weighted
  <br>
	Average
  <br>
	Exercise
  <br>
	<u>Price
  </u>
  </p>
  </td>
  <td valign=bottom style='padding:0pt; '>


  <p align=center style='text-align:center;text-autospace:none'>Number
  <br>
	<u>Exercisable
  </u>
  </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'>Weighted-
  <br>
	Average
  <br>
	Exercise
  <br>
	<u>Price
  </u>
  </p>
  </td>
 </tr>
 <tr>
  <td colspan=6 valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'>$0.35
  to $0.66 </p>
  </td>
  <td valign=top style='padding:0pt; ' align="right">
  <p align=right style='text-align:right;text-autospace:none'>201,816&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='padding:0pt; ' align="right">
  <p align=center style='text-align:center;text-autospace:none'>7.2
  years </p>
  </td>
  <td valign=top style='padding:0pt; ' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $0.43&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='padding:0pt; ' align="right">
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;
  161,816</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:0pt; ' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp; $0.42&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'>$0.80
  to $1.12 </p>
  </td>
  <td valign=top style='padding:0pt; ' align="right">
  <p align=right style='text-align:right;text-autospace:none'>297,500&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='padding:0pt; ' align="right">
  <p align=center style='text-align:center;text-autospace:none'>6.3
  years </p>
  </td>
  <td valign=top style='padding:0pt; ' align="right">
  <p style='text-autospace:none'>0.90&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='padding:0pt; ' align="right">
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;
  241,875</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:0pt; ' align="right">
  <p style='text-autospace:none'>0.91&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'>$1.40
  to $2.06 </p>
  </td>
  <td valign=top style='padding:0pt; ' align="right">
  <p align=right style='text-align:right;text-autospace:none'>302,500&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='padding:0pt; ' align="right">
  <p align=center style='text-align:center;text-autospace:none'>7.4
  years </p>
  </td>
  <td valign=top style='padding:0pt; ' align="right">
  <p style='text-autospace:none'>1.71&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='padding:0pt; ' align="right">
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;
  210,000</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:0pt; ' align="right">
  <p style='text-autospace:none'>1.62&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'>$2.18
  to $2.90 </p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p align=right style='text-align:right;text-autospace:none'>245,000&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p align=center style='text-align:center;text-autospace:none'>6.6
  years </p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p style='text-autospace:none'>2.44&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;
  210,000</p>
  </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:0pt; ' align="right">
  <p style='text-autospace:none'>2.36&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding:0pt; '>

  </td>
  <td valign=top style='border:medium none;padding:0pt; ' align="right">

  </td>
  <td valign=top style='border:medium none;padding:0pt; ' align="right">

  </td>
  <td valign=top style='border:medium none;padding:0pt; ' align="right">

  </td>
  <td valign=top style='border:medium none;padding:0pt; ' align="right">

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

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

  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p align=right style='text-align:right;text-autospace:none'>1,046,816&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p align=center style='text-align:center;text-autospace:none'>6.9
  years</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p style='text-autospace:none'>$
  1.40&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding:0pt; ' align="right">
  <p align=center style='text-align:center;text-autospace:none'>&nbsp;&nbsp;&nbsp;823,691</p>
  </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:0pt; ' align="right">
  <p style='text-autospace:none'>&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;$1.37&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The option plans are substantially similar, call for vesting as approved
by the Board of Directors, and allow for the options to be outstanding for a
period of up to ten years. </p>

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

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>In prior years, we issued warrants to acquire shares of common stock. At
June 30, 2005, warrants to acquire 163,000 shares of common stock were
outstanding. These warrants are fully vested, have a weighted-average exercise
price of $1.62, and a weighted-average remaining life 2.5 years.&nbsp; In April
2005, warrants representing 99,000 common shares were exercised in full at a
price of $1.08 for a total of $106,920.</p>



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



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>In January, 2005, 78,129 Preferred Stock shares representing 100% of all Preferred stock
shares outstanding were converted to 78,129 shares of Common Stock in the
January 2005, leaving no Preferred Stock shares outstanding.&nbsp; We received no
cash proceeds from the conversion.</p>



<p style='text-align:justify;text-autospace:none'><b>NOTE 9 - 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, our 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 required different technology
and marketing strategies.&nbsp; The two reportable segments within Pro-Dex were:
Rotary Devices (formerly, Micro Motors Inc.) and Motion Control (formerly,
Oregon Micro Systems Inc.).</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 131 and are no longer separately defined. </p>

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

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

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

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

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

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

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

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

<p style='text-align:center'>&nbsp;-34-</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'><b>&nbsp;</b></p>

<p style='text-align:justify'><b>Note 10 - 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 years ended June 30 as indicated.</p>



<div align=left>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=630
 style='width:725px;margin-left:18.9pt;border-collapse:collapse;border:medium none; '>
 <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:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=129 valign=top style='width:96.6pt;border:none;border-top:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width=126 valign=top style='width:94.5pt;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p align=center style='text-align:center'>2004</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:0pt 5.4pt 0pt 5.4pt'>
  <p>Net
  income</p>
  </td>
  <td width=129 valign=bottom style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,849,000</p>
  </td>
  <td width=126 valign=bottom style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,120,000</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:0pt 5.4pt 0pt 5.4pt'>
  <p>Basic net income per common share:</p>
  </td>
  <td width=129 valign=bottom style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=126 valign=bottom style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 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:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp; Weighted average of common shares outstanding </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:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,106,846</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:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,799,477</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:0pt 5.4pt 0pt 5.4pt'>
  <p>Basic net income per common share </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:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.20</p>
  </td>
  <td width=126 valign=bottom style='width:94.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.13</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:0pt 5.4pt 0pt 5.4pt'>

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

  </td>
  <td width=126 valign=bottom style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 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:0pt 5.4pt 0pt 5.4pt'>
  <p>Diluted net income
  per share:</p>
  </td>
  <td width=129 valign=bottom style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>

  </td>
  <td width=126 valign=bottom style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 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:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp; Weighted average of common shares outstanding </p>
  </td>
  <td width=129 valign=bottom style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,106,846</p>
  </td>
  <td width=126 valign=bottom style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,799,477</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:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities (options) </p>
  </td>
  <td width=129 valign=bottom style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;502,704</p>
  </td>
  <td width=126 valign=bottom style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;394,486</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:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities (warrants)
  </p>
  </td>
  <td width=129 valign=bottom style='width:96.6pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;41,430</p>
  </td>
  <td width=126 valign=bottom style='width:94.5pt;border:none;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;55,331</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:0pt 5.4pt 0pt 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:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ---&nbsp;&nbsp;&nbsp;</p>
  </td>
  <td width=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:0pt 5.4pt 0pt 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:0pt 5.4pt 0pt 5.4pt'>
  <p>Weighted average number of common shares outstanding -
  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:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,650,980</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:0pt 5.4pt 0pt 5.4pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,327,423</p>
  </td>
 </tr>
 <tr>
  <td width=375 valign=top style='width:281.4pt;border:solid windowtext 1.0pt;
  border-top:none;padding:0pt 5.4pt 0pt 5.4pt'>
  <p>Diluted net income per common share </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:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.19</p>
  </td>
  <td width=126 valign=bottom style='width:94.5pt;border-top:none;border-left:
  none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0pt 5.4pt 0pt 5.4pt'>
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.12</p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify'><b>Note 11 - MAJOR CUSTOMERS</b></p>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The Company had one Major Customer (defined as a customer that represents
greater than 10% of the Company's total revenues) in each of the years ended
June 30, 2004 and 2005.&nbsp; The 10% customer was the same customer in 2005 and
2004.&nbsp;&nbsp; Net sales to the Major Customer in 2005 amounted to $2,385,000 and at
June 30, 2005 the accounts receivable included a balance of $964,000 due from
this Major Customer.&nbsp; Net sales to the Major Customer in 2004 amounted to
$2,480,000 and at June 30, 2004 the accounts receivable included a balance of
$335,000 due from this Major Customer.</p>

<p align=center style='text-align:center'>&nbsp;</p>
<p align=center style='text-align:center'>&nbsp;</p>
<p align=center style='text-align:center'>&nbsp;</p>
<p align=center style='text-align:center'>&nbsp;</p>
<p align=center style='text-align:center'>-35-</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 align=center style='text-align:center;text-autospace:none'><b>EXHIBIT
INDEX</b></p>



<div align="left">



<table class=MsoNormalTable border=0 cellpadding=0 width=726
 style='width:740px;border-collapse:collapse'>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><b>Exhibit
  No. </b></p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'><b>Document
  </b></p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>2.2</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Merger
  Agreement between Pro-Dex, Inc., Micro Systems Acquisition Corporation, and
  Micro Motors, Inc., dated July 26, 1995&nbsp; (incorporated herein by reference to
  the Company's Form 8-K dated July 26, 1996)</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>2.3</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Acquisition
  Agreement between Pro-Dex, Inc., Oregon Micro Systems, Inc. and L. Wayne
  Hunter dated July 26, 1996 (incorporated herein by reference to Exhibit 7.2
  to the Company's Form 8-K dated July 26, 1996). </p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>2.4<sup> </sup></p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Merger
  agreement of Micro Motors Inc. into Pro-Dex Inc. dated June 28, 2004</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>2.5<sup> </sup></p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Merger
  agreement of Oregon Micro Systems Inc. into Pro-Dex Inc. dated June 28, 2004</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>2.6<sup> </sup></p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Merger
  agreement of PDMI Subsidiary B Inc. into Pro-Dex Management Inc. dated June
  28, 2004</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>3.1</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Articles
  of Incorporation (incorporated herein by reference to Exhibit 3.1 to Pro-Dex,
  Inc. Registration Statement No. 33-74397). </p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>3.2</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Bylaws
  (incorporated herein by reference to Exhibit 3.2 to Pro-Dex, Inc.
  Registration Statement No. 33-74397). </p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.16</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Prophy
  Ring Patent License Agreement dated and effective July 1, 1993 between
  Challenge Products, Inc. and Charles L. Bull (incorporated herein by
  reference to Exhibit 10.17 to Pro-Dex, Inc. Registration Statement No.
  33-74397). </p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.17*</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>1994
  Employees Stock Option Plan&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.18*<sup> </sup></p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>1994
  Directors Stock Option Plan as amended</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.19*</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>2004
  Employees Stock Option Plan Charter (incorporated herein by reference to
  Company's Form S-8 filed January 23, 2004).</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.20*</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>2004
  Directors Stock Option Plan Charter (incorporated herein by reference to Form
  S-8 filed January 23, 2004).</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.26</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Audit
  Committee Charter (incorporated herein by reference to Company's Form 10-KSB
  filed October 1, 2002).</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.27</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Real
  Property Sale by Challenge subsidiary (PDMI subsidiary C) Settlement
  Statement (incorporated herein by reference to Company's Form 10-KSB filed
  October 1, 2002). </p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.28</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Acquisition
  Agreement between Pro-Dex, Inc., Oregon Micro Systems, Inc. and L. Wayne
  Hunter dated July 26, 1996 (incorporated herein by reference to Exhibit 7.2
  to the Company's Form 8-K dated July 26, 1996).</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.29</p>

  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Asset
  Sale Agreement dated June 12, 2001, by and among Young Colorado, LLC,
  Pro-Dex, Inc., Pro-Dex Management, Inc., Biotrol International, Inc., and
  Challenge Products, Inc. (incorporated herein by reference to the Form 8-K
  filed July 30, 2001).</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.30</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Micro
  Motors Credit and Security Agreements with WFBCI (incorporated herein by
  reference to Company's Form 10-KSB filed October 1, 2002). </p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.31</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>OMS
  Credit and Security Agreements with WFBCI (incorporated herein by reference
  to Company's Form 10-KSB filed October 1, 2002). </p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.32<sup> </sup></p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Promissory
  Note receivable from Ronald G. Coss</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>10.33<sup> </sup>*<sup> </sup></p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Employment
  agreement as amended with Patrick Johnson dated April 3, 2000, amended
  September 6, 2002</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>21.00<sup> </sup></p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>List
  of Subsidiaries</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>21.01</p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>During
  the fiscal year ended June 30, 2004, the Company's wholly owned subsidiaries,
  Micro Motors, Inc., a Colorado corporation, and Oregon Micro Systems, Inc.,
  an Oregon corporation, were merged into the Company and PDMI subsidiary B, a Delaware corporation merged into Pro-Dex Management Inc., a California Corporation and
  wholly owned subsidiary of the Company.</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>23.1<sup> x</sup></p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Consent
  Letter of Moss Adams LLP</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>31.1<sup> x</sup></p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Certification
  of the Chief Executive Officer Required by Rule 13a-14(a) of the Securities
  Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002 </p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>31.2<sup> x</sup></p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Certification
  of the Chief Financial Officer Required by Rule 13a-14(a) of the Securities
  Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002</p>
  </td>
 </tr>
 <tr>
  <td width=84 valign=top style='width:63.0pt;padding:0pt 0pt 0pt 0pt'>
  <p align=center style='text-align:center;text-autospace:none'>32<sup> x</sup></p>
  </td>
  <td width=642 valign=top style='width:481.5pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Certification
  of the Chief Executive Officer and Chief Financial Officer Pursuant to 18
  U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
  Act of 2002</p>
  </td>
 </tr>
</table>



</div>



<p style='text-autospace:none'>*
Denotes management contract or compensatory arrangement required to be filed as
an exhibit to the Form 10-KSB. <br>
<sup>x</sup> Filed Herewith</p>

<p align=center style='text-align:center'>-36-</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='text-autospace:none'>SIGNATURES </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized. </p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0
 style='border-collapse:collapse'>
 <tr>
  <td width=305 valign=top style='width:229.1pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>PRO-DEX INC. </p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td width=305 valign=top style='width:229.1pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>By: / s / Patrick Johnson </p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td width=305 valign=top style='width:229.1pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>----------------------------- </p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td width=305 valign=top style='width:229.1pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Patrick Johnson </p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td width=305 valign=top style='width:229.1pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Chief Executive Officer</p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td width=305 valign=top style='width:229.1pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>and President </p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>

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



<p style='text-align:justify;text-autospace:none'>In accordance
with the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.</p>

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=746
 style='width:559.85pt;margin-left:-1.8pt;border-collapse:collapse'>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>

  <p style='text-autospace:none'>/
  s / Patrick Johnson&nbsp;</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>

  <p style='text-autospace:none'>September
  27, 2005</p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>---------------------------------&nbsp;
  </p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>&nbsp;------------------------------------
  </p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Patrick
  Johnson&nbsp;</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Date
  </p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>President
  and Chief Executive Officer</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>

  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=24><p>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>(Principal
  Executive Officer)</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>

  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=24><p>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>&nbsp;&nbsp; </p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>&nbsp;&nbsp; </p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>/
  s / Jeffrey J. Ritchey&nbsp; </p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>September
  27, 2005</p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>---------------------------------&nbsp;
  </p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>&nbsp;-------------------------------------
  </p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Jeffrey
  J. Ritchey&nbsp;</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Date
  </p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Treasurer,
  Chief Financial Officer &amp; Secretary</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>

  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=24><p>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>(Principal
  Financial and Accounting Officer) </p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>

  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=24><p>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>&nbsp;&nbsp; </p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>&nbsp;&nbsp; </p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>/
  s / George J. Isaac&nbsp; </p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>September
  27, 2005</p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>----------------------------------&nbsp;&nbsp;
  </p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>----------------------------------------
  </p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>George
  J. Isaac&nbsp;</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>&nbsp;Date
  </p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Director</p>


  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>

  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2></td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  &nbsp;</td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>

  &nbsp;</td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  &nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>/
  s / Mark P. Murphy&nbsp;<br>
	---------------------------------&nbsp;<br>
	Mark
  P. Murphy&nbsp;</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>September
  27, 2005<br>
	----------------------------------------<br>
	Date
  </p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Director</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>&nbsp;</p>
  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=24><p>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2></td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  &nbsp;
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  &nbsp;</td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=24>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>


  <p style='text-autospace:none'>/
  s / Michael Mesenbrink&nbsp;</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>


  <p style='text-autospace:none'>September
  27, 2005</p>
  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=24><p>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>---------------------------------&nbsp;
  </p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>----------------------------------------</p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Michael
  Mesenbrink&nbsp;</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Date</p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Director</p>


  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>

  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2></td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  &nbsp;


  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>

  &nbsp;</td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  &nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>/
  s / Valerio Giannini&nbsp;<br>
	---------------------------------&nbsp;<br>
	Valerio
  Gianinni&nbsp;</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>September
  27, 2005<br>
	---------------------------------------<br>
	Date</p>
  </td>
  <td width=24 valign=top style='width:18.0pt;padding:0pt 0pt 0pt 0pt'>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=2><p>&nbsp;</td>
  <td width=346 colspan=2 valign=top style='width:259.75pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>Director</p>
  </td>
  <td width=374 colspan=3 valign=top style='width:280.3pt;padding:0pt 0pt 0pt 0pt'>
  <p style='text-autospace:none'>&nbsp;</p>
  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=24><p>&nbsp;</td>
 </tr>
 <tr style='height:9.15pt'>
  <td width=252 colspan=2 valign=bottom style='width:189.0pt;padding:0pt 1.8pt 0pt 1.8pt;
  height:9.15pt'>

  </td>
  <td width=252 colspan=2 valign=bottom style='width:189.0pt;padding:0pt 1.8pt 0pt 1.8pt;
  height:9.15pt'>

  </td>
  <td width=218 valign=bottom style='width:163.8pt;padding:0pt 1.8pt 0pt 1.8pt;
  height:9.15pt'>

  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width=24 colspan=2><p>&nbsp;</td>
 </tr>
 </table>

<p align=center style='text-align:center'>-37-</p>

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

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

</div>










</body>

</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>2
<FILENAME>ex23-1.htm
<TEXT>
<html>

<head>


<title>Exhibit 23.1</title>



</head>

<body lang=EN-US>



<p class=MsoNormal style='line-height:12.0pt'>&nbsp;</p>
<p class=MsoNormal style='line-height:12.0pt'>&nbsp;</p>
<p class=MsoNormal style='line-height:12.0pt'><b>Exhibit 23.1</b></p>

<p align=center style='text-align:center'>Consent of Independent Registered
Public Accounting Firm</p>

<p style='text-align:justify'>We consent to the incorporation by reference in
this Registration Statement on Form S-8 (Registration No. 333-112133) filed
January 23, 2004, of our report, dated September 6, 2005, on our audit of the
consolidated balance sheet as of June 30, 2005, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the&nbsp;
years in the two-year period ended June 30, 2005, which report is included in
the Annual Report on Form 10-KSB of Pro-Dex, Inc.</p>

<p>/s/ Moss Adams LLP</p>

<p>Los Angeles, California<br>
September 27, 2005</p>





</body>

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

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

<body>










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



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



<p style='margin-left:36.0pt;text-align:justify;text-indent:
- -36.0pt'><font size="2">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I have reviewed this
Form 10-KSB of Pro-Dex, Inc.;</font></p>



<p style='margin-left:36.0pt;text-align:justify;text-indent:
- -36.0pt'><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:36.0pt;text-align:justify;text-indent:
- -36.0pt'><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:36.0pt;text-align:justify;text-indent:
- -36.0pt'><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 am 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:72.0pt;text-align:justify;text-indent:
- -36.0pt'><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:72.0pt;text-align:justify;text-indent:
- -36.0pt'><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:72.0pt;text-align:justify;text-indent:
- -36.0pt'><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:72.0pt;text-align:justify;text-indent:
- -36.0pt'><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:36.0pt;text-align:justify;text-indent:
- -36.0pt'><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:72.0pt;text-align:justify;text-indent:
- -36.0pt'><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:72.0pt;text-align:justify;text-indent:
- -36.0pt'><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: September 27,
2005&nbsp;&nbsp;&nbsp;</font></p>

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

<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=722
 style='width:541.8pt;border-collapse:collapse' id="table1">
 <tr style='height:9.15pt'>
  <td width=252 valign=bottom style='width:189.0pt;padding:0pt 1.8pt 0pt 1.8pt;
  height:9.15pt'>

  </td>
  <td width=252 valign=bottom style='width:189.0pt;padding:0pt 1.8pt 0pt 1.8pt;
  height:9.15pt'>

  </td>
  <td width=218 valign=bottom style='width:163.8pt;padding:0pt 1.8pt 0pt 1.8pt;
  height:9.15pt'>

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

</body>

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

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

<body>










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

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



<p style='margin-left:36.0pt;text-align:justify;text-indent:
- -36.0pt'><font size="2">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I have reviewed this
Form 10-KSB of Pro-Dex, Inc.;</font></p>



<p style='margin-left:36.0pt;text-align:justify;text-indent:
- -36.0pt'><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:36.0pt;text-align:justify;text-indent:
- -36.0pt'><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:36.0pt;text-align:justify;text-indent:
- -36.0pt'><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 am 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:72.0pt;text-align:justify;text-indent:
- -36.0pt'><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:72.0pt;text-align:justify;text-indent:
- -36.0pt'><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:72.0pt;text-align:justify;text-indent:
- -36.0pt'><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:72.0pt;text-align:justify;text-indent:
- -36.0pt'><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:36.0pt;text-align:justify;text-indent:
- -36.0pt'><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:72.0pt;text-align:justify;text-indent:
- -36.0pt'><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:72.0pt;text-align:justify;text-indent:
- -36.0pt'><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: September 27,
2005&nbsp;&nbsp;&nbsp;</font></p>

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



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<TYPE>EX-32
<SEQUENCE>5
<FILENAME>ex32.htm
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<title>EXHIBIT 32</title>
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<p><b><font size="2">&nbsp;</font></b></p>
<p><b><font size="2">EXHIBIT 32</font></b></p>





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

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



<p style='margin-top:0pt;text-align:justify'><font size="2">In connection with the
annual report on Form 10-KSB of Pro-Dex Inc. (the &quot;Company&quot;) for the annual
period ended June 30, 2005 (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:</font></p>

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

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



<p><font size="2">Dated: September
27, 2005&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; By:</font><u><font size="2">
/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>
</font> </u><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Patrick
L. Johnson<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chief
Executive Officer and President</font><u><font size="2"><br>
</font>
</u></p>



<p><font size="2">Dated: September
27, 2005&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; By:</font><u><font size="2">
/s/&nbsp;&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;
<br>
</font> </u><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Jeffrey
J. Ritchey<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chief Financial Officer</font></p>



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



<p align=center style='text-align:center;text-autospace:none'><b>End of Filing</b></p>

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