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<SEC-DOCUMENT>0001003297-06-000381.txt : 20060928
<SEC-HEADER>0001003297-06-000381.hdr.sgml : 20060928
<ACCEPTANCE-DATETIME>20060928133132
ACCESSION NUMBER:		0001003297-06-000381
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20060630
FILED AS OF DATE:		20060928
DATE AS OF CHANGE:		20060928

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PRO DEX INC
		CENTRAL INDEX KEY:			0000788920
		STANDARD INDUSTRIAL CLASSIFICATION:	SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]
		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:		061113277

	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>
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<title>Pro-Dex Inc. Form 10K-SB bu www.edgar2.com</title>



</head>

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















  <p>&nbsp;</p>
<p align="center"><b>UNITED STATES <br>
SECURITIES AND EXCHANGE COMMISSION</b></p>
  <p align="center"><b>Washington, D.C. 20549</b></p>

  <p align=center style='text-align:center'><b>&nbsp;</b></p>
  <p align="center"><b><font size="6">FORM
  10-KSB</font></b></p>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  <p style='margin-left: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, 2006</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 UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.&nbsp;&nbsp; FOR THE TRANSITION
  PERIOD FROM&nbsp; <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>TO&nbsp;
  <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; .</u></b></p>



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

<table class=MsoNormalTable border=0 cellpadding=0 width=721
 style='width:100%;border-collapse:collapse' id="table2">
 <tr>
  <td colspan=2 valign=top style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b>Commission
  File Number&nbsp;&nbsp;&nbsp; 0-14942 </b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b>
	<font size="6">PRO-DEX, INC.&nbsp;&nbsp;&nbsp; </font> </b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b>
	<font size="2">(Name
  of small business issuer in its charter)&nbsp;&nbsp;&nbsp;&nbsp; </font> </b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>Colorado </u></b></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>84-1261240
  </u></b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='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='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b>(IRS
  Employer Identification No.) </b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b>incorporation
  or organization)</b></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding: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>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b>(Address
  of Principal Executive Offices)&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; &nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b>Issuer's
  telephone number: (<u>714) 241-4411 </u></b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0pt; '>
  &nbsp;</td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding: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>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0pt; '>
  &nbsp;</td>
 </tr>
 <tr>
  <td valign=bottom style='padding:0pt; ' align="center">
    <p align=center style='text-align:center;text-autospace:
    none'><b><u>Title of each class </u></b></p>
  </td>
  <td valign=bottom style='padding:0pt; ' align="center">
  <b>Name of each exchange <u><br>
	on which registered </u> </b>
  </td>
 </tr>
 <tr>
  <td valign=bottom style='padding:0pt; ' align="center">
  <b>Common Stock, no par Value</b></td>
  <td valign=bottom style='padding:0pt; ' align="center">
  <b>NASDAQ Capital Market </b>
  </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>None<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;text-autospace:none'>-1-</p>

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style='page-break-before:always'>












<p style='text-align:justify;text-indent:36.0pt;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-indent:36.0pt;text-autospace:
none'>Indicate by check mark whether the registrant is a shell company (as
defined by rule 12b-2 of the Exchange Act).</p>

<p align=center style='text-align:center;text-autospace:none'>Yes
[&nbsp; ]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No&nbsp; [&nbsp;X ]</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>State issuer's revenues for its most recent fiscal year were <u>$17,061,000</u>.
</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the average bid and
asked price of such common equity as of September 8, 2006, within the past 60
days was $9,294,848. 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: 9,539,792 shares of Common Stock, no par value, as
of September 8, 2006. </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 2006 Annual Meeting of Shareholders.&nbsp;
Certain exhibits are set forth in the Exhibit Index. The Exhibit Index begins
on sequentially numbered page 40. </p>



<p style='text-indent:36.0pt;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'>&nbsp;</p>

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

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<p align="justify" style="text-indent: 36pt">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, market 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="justify" style="text-indent: 36pt">&nbsp;</p>
<p align="justify" style="text-indent: 36pt">&nbsp;</p>
	<p align="justify" style="text-indent: 36pt">&nbsp;</p>
	<p align="justify" style="text-indent: 36pt">&nbsp;</p>
	<p align="justify" style="text-indent: 36pt">&nbsp;</p>
	<p align="justify" style="text-indent: 36pt">&nbsp;</p>
	<p align="justify" style="text-indent: 36pt">&nbsp;</p>
<p align="justify" style="text-indent: 36pt">&nbsp;</p>
<p align="center">-3-</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'>&nbsp;Pro-Dex, Inc. (&quot;Company,&quot; &quot;Pro-Dex&quot;, &quot;we,&quot; &quot;our,&quot;, &quot;us&quot;), with operations in Santa Ana, California, Beaverton,
Oregon and Carson City, Nevada, specializes in bringing speed to market in the
development and manufacture of technology-based solutions that incorporate
embedded motion control, miniature rotary drive systems and fractional
horsepower DC motors, serving the medical, dental, semi-conductor, scientific
research and aerospace markets. Pro-Dex's products are found in hospitals,
dental offices, medical engineering labs, commercial and military aircraft,
scientific research facilities and high tech manufacturing operations around
the world. The company names of Micro Motors, Oregon Micro Systems, and
Astromec are used for marketing purposes as brand names.</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="#000080">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 100 F Street, N.E., 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="#000080"> <u>www.sec.gov.&nbsp; </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 rotary drive systems for the medical device and dental
industries, motion control software and hardware for industrial and scientific
applications and fractional horsepower DC motors for aerospace, medical and
military applications. The Company distributes its own line of pneumatic and
electric dental hand pieces sold under the Micro Motors name utilizing a
network of independent sales representatives across North America.&nbsp; A large
part of the revenue of the Company has been driven by developing and selling
numerous private label rotary drive systems for use in dental, cranial, spinal,
arthroscopic and orthopedic surgery.&nbsp; Other revenue sources include designing
and manufacturing miniature pneumatic motors, fractional horsepower DC motors
and motion control systems for industrial applications in the automotive,
aerospace, and apparel 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
ending June 30, unless indicated otherwise.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Company-funded research and development supports the development of
generic rotary drive, motion control and electric motor technology platforms.&nbsp;
We 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 research and development costs not associated
with contracts or purchase orders are expensed as incurred.&nbsp; In the year ended
June 30, 2006, $2,009,000 was expensed; an increase of $269,000 from the
$1,740,000 expensed in the year ended June 30, 2005.&nbsp; The addition of costs of Pro-Dex
Astromec, the Company's wholly owned subsidiary established in January 2006,
accounted for $164,000 of the increase and the remainder was attributable to
increased internal costs and external engineering consulting fees for product
improvement, specialty design and validation work.&nbsp; </p>
<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>&nbsp;</p>
<p style='text-align:center;text-autospace:
none'>-4-</p>



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<p align="justify" style="text-indent: 36pt">Customer-funded research and development provided
$71,000 in revenue in the year ended June 30, 2006, and $566,000 in revenue in
the year ended June 30, 2005, reflecting a decrease in development fees
billable during the quarter as engineering efforts were focused on upgrading
current products and supporting warranty work.&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 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, 2006, $54,000 was recognized as cost of sales, compared
to $144,000 recognized as cost of sales in the year ended June 30, 2005,
reflecting a decrease in costs associated with the development fees billable
during the quarter. </p>



<p style='text-autospace:ideograph-numeric ideograph-other; text-indent:36pt' align="justify">The
Company's revenue is derived from five main customer types.&nbsp; The proportion of
sales compared to Pro-Dex total sales, sales to each customer type and sales by
location is noted in the table below:</p>



<table class=MsoNormalTable border=0 cellpadding=0 width=594
 style='width:90%;margin-left:14.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Sales by customer type ($'000)</font></p>
  </td>
  <td nowrap colspan=2 valign=bottom style='border-left:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-right:1.0pt solid black; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">&nbsp;&nbsp;&nbsp;FY 2006</font></p>
  </td>
  <td nowrap colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:medium none;border-bottom:1.0pt solid windowtext;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">&nbsp;&nbsp;&nbsp;FY 2005</font></p>
  </td>
  <td nowrap colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:medium none;border-bottom:1.0pt solid windowtext;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">&nbsp;&nbsp;&nbsp;FY 2004</font></p>
  </td>
  <td nowrap colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:medium none;border-bottom:1.0pt solid windowtext;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">&nbsp;&nbsp;&nbsp;FY 2003</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Dental</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 3,924&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">23%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 3,368&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">24%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">$&nbsp;&nbsp; 4,578&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">32%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">$&nbsp;&nbsp; 5,156&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">43%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Medical* </font> </p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,312&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">37%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,849&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">42%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,864&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">41%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">3,357&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">28%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Industrial</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,753&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">22%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,570&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">26%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,533&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">18%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">2,278&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">19%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Aerospace*</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,194&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">7%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;--&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;-- </font> </p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right><font size="2">&nbsp;--&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;-- </font> </p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right><font size="2">&nbsp;--&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;-- </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Government research and
  other</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,878&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">11%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,047&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">8%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,225&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">9%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">1,199&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">10%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total Sales</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$ 17,061&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$ 13,834&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$ 14,200&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">$&nbsp; 11,990&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

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



<p style='margin-left:36.0pt;text-align:justify;text-indent:
36.0pt;text-autospace:none'>*Pro-Dex Astromec's sales are primarily to the
aerospace and medical markets and became a part of Pro-Dex with the acquisition
of substantially all of Astromec's assets in January 2006.&nbsp; Pro-Dex Astromec's
sales were $1,196,000 to aerospace customers and $457,000 to medical customers
since the acquisition in the year ended June 30, 2006.</p>



	<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=451
 style='width:55%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">FY</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">FY</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">FY</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">FY</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Sales by location ($'000)</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2004</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2003</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Santa Ana</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$ 10,823&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 9,946&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$ 10,900&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 9,281&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Beaverton</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,585&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,888&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,300&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; 2,709&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Carson City</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,653&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total Sales</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$ 17,061&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$ 13,834&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$ 14,200&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$ 11,990&nbsp;</font></p>
  </td>
 </tr>
</table>





	</div>










<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Medical product sales represent the manufacture of products that 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 markets our own
branded line of dental products, including Intraflow. &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;
We added significant sales to the aerospace market with the purchase of the
Astromec assets and establishing Pro-Dex Astromec in January 2006.&nbsp; These
products include highly reliable fractional horsepower DC motors designed for
harsh environments.&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>In 2006, the top 20 customers accounted for 73% of our sales, compared to
69% in 2005.&nbsp; In 2006, our three largest customers accounted for 37% of such
sales with one customer accounting for over 22% of our sales.&nbsp; This compares to
2005 when our three largest customers accounted for 31% of our sales with the
largest customer accounting for 17%.&nbsp; One other customer accounted for over 10%
in 2006 and there was no other customer accounting for over 10% of sales in
2005.&nbsp; Our larger customers, based on revenue, include Smith and Nephew,
Medtronics, Sullivan Schein, Lawrence Livermore National Laboratories,
Monogram, and Pemstar.&nbsp; In some cases, disclosure of other larger customer
names is prohibited by confidentiality agreements with such entities.&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:center;text-autospace:
none'>-5-</p>



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<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>All of the raw materials used to manufacture our products are purchased
from various suppliers and are available from several sources. Precipart Corporation,
Tyco Precision Interconnect and Transicoil 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 for recurring
product within sixty (60) days.&nbsp; At June 30, 2006, we had a backlog, including
orders for delivery beyond 60 days, of $11.7 million compared with a backlog of
$10.7 million at March 31, 2006 and $7.9 million at June 30, 2005.&nbsp; We expect
to ship most of our backlog in fiscal year 2007 and the remainder in fiscal
year 2008.&nbsp; The increased backlog from 2005 is due to an increase in the number
and size of new purchase orders in the last twelve months from existing customers
and the addition of the Pro-Dex Astromec backlog of $1.8 million.&nbsp; The increase
from March, 2006 is due to the receipt of a large follow-on purchase order with
a current customer.&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. </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;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, motion control 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, motion control 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. </p>



<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;<b><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i></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'>We conduct company-funded and project specific customer funded research and
development programs. These product development programs are important to both
maintain and improve our market position. The net amounts spent on company
funded research and development activities in 2006 and 2005 were approximately
$2.01 million and $1.74 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>



	<ul>
		<li>
		<p style='text-align:justify;text-autospace:none'>expanding our knowledge base in the medical device industry to
solidify our products with current customers and expand our customer base</p>
		</li>
		<li>
		<p style='text-align:justify;text-autospace:none'>general technical advances and </p></li>
		<li>
		<p style='text-align:justify;text-autospace:none'>enhancements of current product lines. </p></li>
	</ul>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>One of our strategies is to 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, 2006, we had 122 full-time employees at three facilities compared
to 92 full-time employees at June 30, 2005 at two facilities.&nbsp; As of June 30,
2006, there were 86 persons employed at the Santa Ana location, 24 persons
employed at the Carson City location and 12 persons employed at the Beaverton location compared to 79 persons employed at the Santa Ana location and 13
persons employed at the Beaverton location at June 30, 2005.&nbsp; We have reduced
the use of temporary labor from temporary staffing agencies and employed 2
agency temps at June 30, 2006, which is a decrease from 15 agency temps at June
30, 2005. </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; Furthermore,
even if we are subsequently determined to have fully complied with applicable
laws or regulations, our costs to achieve such a determination and the
intervening loss of business could adversely affect or even terminate a portion
of our business. 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>
	<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>&nbsp;</p>
	<p style='text-align:center;text-autospace:
none'>-7-</p>

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<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Management believes that our business 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 believe that the use of the patents acquired in connection with the
1995 OMS and Micro Motors acquisitions is neither infringed upon by any third
party, nor infringes on any prior art of any third party. &nbsp;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 unlikely for a claim to 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, however we do have a royalty agreement in place
for a previously designed product.&nbsp; This income is reflected as &quot;other income&quot;
and not &quot;revenue&quot;.</p>

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

<p style='text-align:justify;line-height:normal'><b>We face
significant competition from a number of different sources.&nbsp; &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, factory automation and small motor manufacturing
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, factory automation
and small motor manufacturing 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>&nbsp;</b></p>

<p style='margin-bottom:6.0pt;text-align:center'>&nbsp;-8-</p>

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<p style='margin-bottom:6.0pt;text-align:justify'><b>Our
quarterly results can fluctuate significantly from quarter to quarter.</b></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>

<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; text-indent:36pt'>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>A
substantial portion of our business is derived from our three core business
areas.</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
healthcare, factory automation and small motor 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>The
industry in which we operate is subject to significant 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, factory automation and small motor 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.&nbsp; 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 align=center style='text-align:center'>-9-</p>

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<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 and updating
existing 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.&nbsp; 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>We face
the risks and uncertainties that are associated with litigation against us</b><b>. </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>We rely
heavily on our 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>Our
failure to manage growth could harm us.</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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, 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>&nbsp;</b></p>

<p style='margin-bottom:6.0pt;text-align:center'>&nbsp;-10-</p>

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<p style='margin-bottom:6.0pt;text-align:justify'><b>Our
operations are dependent upon our key personnel. If such personnel were to
leave unexpectedly, we may not be able to execute our business plan.</b> &nbsp;&nbsp;</p>

<p style='margin-bottom:6.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Our
future performance also depends in significant part upon the continued service
of our key technical and senior management personnel, many of whom have been
with the Company for a significant period of time.&nbsp; We purchased term key man
life insurance policy for the president in December 2004 and terminated that
coverage in May 2006, and do not maintain key man life insurance on any other
of our employees.&nbsp; We anticipate reinstating the coverage in fiscal year 2007.&nbsp;
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 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>Our
products may be subject to product liability legal claims.</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.&nbsp; 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>We are subject to changes in
and interpretations of financial accounting matters that govern the measurement
of our performance</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>Our per share price may be
adversely effected if material weaknesses in our internal controls are
identified by ourselves or our independent auditors</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:center'>&nbsp;-11-</p>

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<p style='text-align:justify'><b>Our earnings will be affected
beginning fiscal year 2007 when we begin recognizing employee stock option
expense, pursuant to recently issued accounting standards.</b> </p>

<p style='text-align:justify'><b><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i></b>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, &quot;Statement of Financial Accounting Standard
No. 123(R) &quot;Share Based Payment&quot; 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 concerning periods after July 1,
2006 will reflect the change and our reported earnings will be adversely
affected. </p>

<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 $15,000 through June 2007.&nbsp; The building is a two-story stand-alone building
of concrete tilt-up construction, approximately 35 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 20-year-old industrial office complex and in good condition.</p>



<p style='text-align:justify;text-indent:36.0pt'>Our
Pro-Dex Astromec office and manufacturing facility is located at 2950 Arrowhead Drive, Carson City, NV 89708.&nbsp; The Company purchased 4.4 acres of real
property and a 20,000 square foot industrial building and related improvements
located in Carson City, Nevada (collectively, the Property) for $2,200,000 in
March 2006.&nbsp; The building is a two-story building of concrete block
construction in an industrial park near the Carson City airport and in good
condition.&nbsp; The purchase was financed with cash on hand and by a 10 year
Promissory Note and related Loan Agreement with Union Bank of California (the
Bank), whereby the Company borrowed the principal sum of $1,650,000.</p>










<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The principal balance of the Union Bank loan evidenced by the Promissory Note
bears interest at a fixed rate of 6.73% per annum. Under the terms of the Promissory
Note, the Union Bank loan amortizes as a 25 year obligation due in 10 years
with 120 equal monthly payments of $11,379 beginning May 1, 2006. The maximum
amount of future payments due under the Promissory Note (undiscounted and
assuming no prepayment) is $2,653,036.&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>&nbsp;We believe that the monthly rental rates are comparable to rents charged
for comparable properties in the market area and 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'>We are from time to time a party to various legal proceedings incidental
to our business, none of which we consider to be material at this time.&nbsp; 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'>&nbsp;</p>
	<p style='text-align:center;text-autospace:
none'>-12-</p>

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










<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, 2006.&nbsp; </p>

<p style='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 Nasdaq Capital 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. &nbsp;On August 31, 2006, the last
sale price of our common stock as reported by NASDAQ was $1.53 per share.</p>

<div align=center>

<table class=MsoNormalTable border=0 cellpadding=0
 style='border-collapse:collapse' width="40%">
 <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><font size="2">Quarter Ended </font> </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>
  <font size="2">High
  </font>
  </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>
  <font size="2">Low
  </font>
  </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'><font size="2">September 30, 2004 </font> </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'><font size="2">3.18
  </font>
  </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'><font size="2">1.86
  </font>
  </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'><font size="2">December 31, 2004</font></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'><font size="2">2.92
  </font>
  </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'><font size="2">2.50
  </font>
  </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'><font size="2">March 31, 2005</font></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'><font size="2">3.30
  </font>
  </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'><font size="2">2.67
  </font>
  </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'><font size="2">June 30, 2005</font></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'><font size="2">3.56
  </font>
  </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'><font size="2">2.50
  </font>
  </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'><font size="2">September 30, 2005 </font> </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'><font size="2">3.73
  </font>
  </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'><font size="2">2.72
  </font>
  </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'><font size="2">December 31, 2005</font></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'><font size="2">3.60
  </font>
  </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'><font size="2">2.39
  </font>
  </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'><font size="2">March 31, 2006</font></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'><font size="2">2.78
  </font>
  </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'><font size="2">2.38
  </font>
  </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'><font size="2">June 30, 2006</font></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'><font size="2">2.53
  </font>
  </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'><font size="2">1.68
  </font>
  </p>
  </td>
 </tr>
</table>

</div>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>At June 30, 2006, there were approximately 283 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 do
not intend 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>

	<div align="left">












<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0
 style='border-collapse:collapse;border:none' width="90%">
 <tr>
  <td width=185 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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p style='text-autospace:none'><font size="2">As of June 30, 2006</font></p>




  <p style='text-autospace:none'><font size="2">Plan Category</font></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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>


  <p align=center style='text-align:center;text-autospace:none'><font size="2">Number
  of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and
  Rights</font></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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>


  <p align=center style='text-align:center;text-autospace:none'><font size="2">Weighted
  Average Exercise Price of Outstanding Options, Warrants and Rights</font></p>
  </td>
  <td width=322 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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center;text-autospace:none'><font size="2">Number
  of Securities<br>
&nbsp;Available for Issuance<br>
&nbsp;Under Equity <br>
  Compensation Plans
  <br>
  (excluding services <br>
  reflected in column (a))</font></p>
  </td>
 </tr>
 <tr>
  <td width=185 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; 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:
  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'>
  <p align=center style='text-align:center;text-autospace:none'><font size="2">(a)</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center;text-autospace:none'><font size="2">(b)</font></p>
  </td>
  <td width=322 valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center;text-autospace:none'><font size="2">(c)</font></p>
  </td>
 </tr>
 <tr>
  <td width=185 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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p style='text-autospace:none'><font size="2">Plans Approved by<br>
	Stockholders</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  <p align=center style='text-align:center;text-autospace:none'><font size="2">1,204,316</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  <p align=center style='text-align:center;text-autospace:none'><font size="2">$1.68</font></p>
  </td>
  <td width=322 valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  <p align=center style='text-align:center;text-autospace:none'><font size="2">328,045</font></p>
  </td>
 </tr>
 <tr>
  <td width=185 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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p style='text-autospace:none'><font size="2">Plans Not Approved by<br>
  Stockholders</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  <p align=center style='text-align:center;text-autospace:none'><font size="2">&nbsp;&nbsp;
  100,000</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  <p align=center style='text-align:center;text-autospace:none'><font size="2">&nbsp;
  1.25</font></p>
  </td>
  <td width=322 valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  <p align=center style='text-align:center;text-autospace:none'><font size="2">---</font></p>
  </td>
 </tr>
 <tr>
  <td width=185 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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p style='text-autospace:none'><font size="2">Total</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center;text-autospace:none'><font size="2">1,304,316</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center;text-autospace:none'><font size="2">$1.65</font></p>
  </td>
  <td width=322 valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center;text-autospace:none'><font size="2">328,045</font></p>
  </td>
 </tr>
</table>



	</div>



<p style='text-autospace:none'>&nbsp;</p>
	<p style='text-autospace:none' align="center">-13-</p>

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	<p style='text-autospace:none'>The Company made no repurchases
of its securities during the fourth quarter ended June 30, 2006. </p>

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

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The following discussion and analysis provides information that
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, 2005 and 2006, 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; </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 (GAAP).&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 revenue recognition, warranty reserve, inventory
valuations for slow moving items, impairment of goodwill, and the recovery of
deferred income tax assets.</p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We recognize sales
and associated cost of sales, upon shipment, FOB origin.&nbsp; There have been
minimal returns for credit, so no reserve for product returns has been established.
</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 sales 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 sales
history, and expected near term sales prospects.</p>










<p style='text-align:justify;text-indent:36.0pt'>The majority
of our products have a twelve month warranty.&nbsp; We determine our warranty
reserve based on considering the historical costs to repair warranty eligible
products and by estimating the number and type of products that may be eligible
for warranty return and repair.&nbsp; We calculate our reserve by calculating a cost
estimate based on what products are known to be warranty-eligible, have been
returned and are in process of being repaired and combining it with an expected
cost for units in the field that have a potential to be returned for
warranty-eligible repair.&nbsp; The potential return amount is based on historical
return and repair cost data.&nbsp;&nbsp; At June 30, 2006 we had $309,000 in accrued
warranty reserve.&nbsp; Of this amount, $139,000 was for known deficiencies and
$170,000 was for future anticipated costs. </p>



<p style='text-indent:36.0pt'>The Company accounts for
goodwill under 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; We have recorded no impairment
charge in 2005 or 2006. &nbsp;We prepare our annual impairment testing on April 1 of
each year.&nbsp; </p>



<p style='text-align:justify'>&nbsp;&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.&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 style='text-align:center'>-14-</p>

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



<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 jurisdiction in which the
Company operates and the period over which the deferred tax assets will be
recoverable.&nbsp; In the event that actual results differ from these estimates
or 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><b>Year in Review</b></p>



<p style='text-align:justify;text-indent:36.0pt'>Fiscal year
2006 was a time of growth and change at our Company.&nbsp; After three years of
profitable organic growth, we made two strategic asset acquisitions,
strengthening our product line by adding a high impact specialty dental product
and a component supplier with a majority of its sales to the aerospace market.&nbsp;
The first was the acquisition of the intellectual property associated with what
became our Intraflow product line.&nbsp; This product is a simple and cost-effective
application of a century-old concept to deliver dental anesthetic to a single
tooth, providing benefits to both the doctor and the patient.&nbsp; This product,
while not providing an immediate large sales increase this year, has been well
received by the using community, giving us confidence in its long term value in
the market.&nbsp; The second acquisition comprised of the operating assets and
property, plant and equipment that became Pro-Dex Astromec.&nbsp; Pro-Dex Astromec
specializes in developing and manufacturing fractional electric horsepower
motors that are used primarily in the harsh environments seen in the aerospace
and medical applications.&nbsp;&nbsp; Included in the Pro-Dex Astromec purchase was the
land and building in Carson City, Nevada where the Astromec business had been
located for a number of years.&nbsp; This owned property gives the Company a low
cost option for expansion as needed.&nbsp;&nbsp;&nbsp; </p>










<p style='text-align:justify;text-indent:36.0pt'>While we grew
our sales by over 23% in fiscal year 2006 as compared to fiscal year 2005 and
over 60% in the four years since fiscal year 2002, we had challenges in
maintaining our gross margin this year.&nbsp; In the first half of fiscal year 2006,
a vendor supplied component part began to fail on certain medical device
products that were shipped in fiscal year 2005.&nbsp; We began to see increased
warranty costs for repair parts and replacement units as the failures were
within the one-year warranty period.&nbsp; The vendor subsequently went out of
business so we decided that the best alternative to support the customers
affected was to redesign the products in question.&nbsp; This diverted a significant
amount of our engineering resources and slowed our new product development
process.&nbsp; Therefore, while we retained the customers that were already on
order, we had a reduced level of new product development and the associated
revenue.&nbsp; By the end of the year, we spent over $400,000 in warranty costs and
accrued for over $300,000 for products that were still in the field but had a
potential for failing.&nbsp;&nbsp; Manufacturing efficiencies were also negatively
affected as we spent considerable effort in fixing the product problems.&nbsp; These
warranty costs and resulting manufacturing inefficiencies resulted in the first
year to year downturn in gross profit and gross margin since 2002.&nbsp; To take the
lessons learned from this year's problems and reduce their reoccurrence, we
implemented a new engineering design system and increased resources dedicated
to procurement, quality assurance and engineering.&nbsp; Despite the challenges
faced in fiscal year 2006, we lost no customers, revenue and backlog continued
to grow, and we maintained profitable operations overall.&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt'>As we enter
fiscal 2007, we are beginning to see the results of the efforts put forth in
fiscal year 2006 in improved product quality, better designs and more efficient
manufacturing.&nbsp; With the acquisitions of Intraflow and Astromec, we have added
an exciting new product and entered a market with significant growth
potential.&nbsp; We believe that we have put in place the foundation for long term
growth in both the revenue and profitability of the Company. &nbsp;&nbsp;</p>

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

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<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, 2006, Compared to Fiscal Year Ended June 30, 2005 </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="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=571
 style='width:85%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">(In Thousands)</font></p>
  </td>
  <td nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Fiscal Year Ended June 30,
  </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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;padding-left:0pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2006</font></p>
  </td>
  <td nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2005</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net sales:</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 17,061&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">100.0%</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 13,834&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">100.0%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Cost of sales</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10,485&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">61.5%</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,754&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">48.8%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Gross Profit</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,576&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">38.5%</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,080&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">51.2%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Selling, general and administrative
  expenses</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,421&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">20.1%</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,048&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">22.0%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Research and development
  costs</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,009&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">11.8%</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,740&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">12.6%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Income from Operations</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,146&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">6.7%</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,292&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">16.6%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net interest and other
  (income)</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;(7)</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">(0.0%)</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (138)</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">(1.0%)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Provision for Income Taxes</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 326&nbsp;</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">1.9%</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 581&nbsp;</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">4.2%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net Income</font></p>
  </td>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 827&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">4.8%</font></p>
  </td>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 1,849&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">13.4%</font></p>
  </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;&nbsp; Consolidated sales increased 23% or $3,227,000 to $17,061,000
from $13,834,000 for the twelve months ended June 30, 2006, compared to the twelve
months ended June 30, 2005.&nbsp; Approximately 50% of the increase was due to
the addition of Pro-Dex Astromec beginning in January 2006.&nbsp; Medical sales were
higher, once again due to the inclusion of the Pro-Dex Astromec medical sales.&nbsp;
Shipments to dental customers increased by 16% even after reflecting a one time
$245,000 credit for the Intraflow product that was issued at the completion of
the Intravantage asset acquisition in October 2005. The credit reversed sales
from the prior fiscal year as the product was returned as a condition of the
acquisition. &nbsp;Sales to industrial customers increased 5% for the same
period in the prior year as shipments to a large customer of industrial motors
showed renewed strength.&nbsp; Sales to government and other customers had a 79%
year over year increase in 2006 due to the fulfillment of a non-recurring large
order in the last quarter of the 2006 fiscal year.&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Customer-funded research and development provided $71,000 in revenue in
the year ended June 30, 2006, and $566,000 in revenue in the year ended June
30, 2005, reflecting a decrease in development fees billable during the year as
engineering efforts were focused on upgrading current products and supporting
warranty work.&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-align:justify;text-indent:36.0pt;text-autospace:
none'>Although selective price increases and decreases were implemented in
response to market conditions, the majority of the sales growth and declines
for each product line is due primarily to changes in sales volume, not the
effect of price changes. </p>
	<p style='text-align:center;text-autospace:
none'>-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-indent:36.0pt;text-autospace:
none'>The amount of Pro-Dex total sales to each customer type and the
year-to-year change is noted in the table below:</p>

	<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=427
 style='width:55%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">FY</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">FY</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Increase/</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Sales by customer type ($'000)</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">(Decrease)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Dental</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,924&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,368&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">17%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Medical* </font> </p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,312&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,849&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">8%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Industrial</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,753&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,570&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">5%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Aerospace*</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,194&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;--&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;-- </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Government research and
  other</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,878&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,047&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">79%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 17,061&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 13,834&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <p><font size="2">23%</font></p>
  </td>
 </tr>
</table>





	</div>





<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>*Pro-Dex Astromec's sales are primarily to the aerospace and medical
markets and became a part of Pro-Dex with the acquisition of substantially all
of Astromec's assets in January 2006.&nbsp; Pro-Dex Astromec's sales were $1,196,000
to aerospace customers and $457,000 to medical customers since the acquisition
in the year ended June 30, 2006.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'><b>Gross Profit </b>The Company's consolidated gross profit for 2006
decreased $504,000 or 7% compared to the gross profit in the previous year as
over $400,000 of warranty costs were incurred plus $309,000 in anticipated costs
of repairs of medical devices were accrued for.&nbsp; Gross profit as a percentage
of sales decreased to 39% for the year ended June 30, 2006 compared to 51% for
the year ended June 30, 2005.&nbsp; The warranty issues noted above accounted for 4%
of the decreased margin.&nbsp; Consolidated margins declined an additional 2% due to
the Pro-dex Astromec consolidation, as this component business historically had
margins in the 20% to 30% range. &nbsp;Other factors leading to the margin reduction
were a slightly lower margin in dental sales, a less favorable sales mix with a
decrease in high margin factory automation and research and development sales,
and lower capacity utilization.&nbsp; Gross profit and gross profit percentage were
as follows: </p>



	<div align="center">












<table class=MsoNormalTable border=0 cellpadding=0 width=439
 style='width:55%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Fiscal Year ended June 30,</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">(Decrease)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Gross Profit</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$6,576,000</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$7,080,000</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">(7%)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Gross Profit Percentage</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">39%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">51%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">(25%)</font></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 increased 12% to $3,421,000 for the year ended June 30, 2006
from $3,048,000 for year ended June 30, 2005.&nbsp; The increase in selling expense is
mainly due to expenses associated with the Intraflow product launch of
$150,000.&nbsp; General and administrative costs were higher primarily due to
consolidating $125,000 in normal S, G &amp; A costs at Pro-Dex Astromec into
the total Pro-Dex S, G&amp;A. &nbsp;As a percentage of sales, S, G&amp;A costs
decreased from 22% to 20% due to the low sales expenditure activity at Pro-Dex
Astromec and overall cost containment throughout the company.&nbsp; S, G &amp; A
costs were as follows: </p>



	<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=483
 style='width:55%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Fiscal Year ended June 30,
  </font> </p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Increase</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Selling</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,191,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 957,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">24%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">General and administrative</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,230,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 2,091,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">7%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total S, G&amp;A</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,421,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 3,048,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">12%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">S, G&amp;A Percentage of
  Sales</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">20%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">22%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">(9%)</font></p>
  </td>
 </tr>
</table>



	</div>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>&nbsp;</p>
	<p style='text-align:center;text-autospace:
none'>-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-align:justify;text-indent:36.0pt;text-autospace:
none'><b>Research and development costs</b>.&nbsp; Company funded research and
development expenses increased $269,000 to $2,009,000 for the year ended June
30, 2006 from $1,740,000 for the year ended June 30, 2005, an increase of 15%. &nbsp;The
addition of Pro-Dex Astromec added $164,000 to the total consolidated research
and development costs, the remainder was due to increased consulting,
independent project research costs and recruiting.&nbsp; Company-funded research and
development costs were as follows:</p>



	<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=501
 style='width:55%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Fiscal Year ended June 30,</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Increase</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Research and Development
  Costs</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$2,009,000 </font> </p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1,740,000 </font> </p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">15%</font></p>
  </td>
 </tr>
</table>





	</div>





<p style='text-align:justify;text-indent:36.0pt'><b>Operating
Profit and Operating Profit </b><b>Percentage of Sales</b>.&nbsp; Our
consolidated operating profit for the year ended June 30, 2006 decreased to
$1,155,000 compared to operating profit of $2,292,000 for the year ended June
30, 2005.&nbsp; The decrease was due to the reduced gross margin.&nbsp; Consequently,
operating profit as a percentage of sales decreased to 6.8% for the year ended
June 30, 2006 compared to 16.6% for the year ended June 30, 2005.&nbsp; Operating
profit and margin were as follows:</p>

	<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=497
 style='width:55%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Fiscal Year ended June 30,
  </font> </p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">(Decrease)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Operating Profit</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1,146,000 </font> </p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$2,292,000 </font> </p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">(50%)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Operating profit
  Percentage</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">7%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">17%</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">(59%)</font></p>
  </td>
 </tr>
</table>

	</div>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>&nbsp;<b>Royalties and Other Income. </b>&nbsp;We earned and received $51,000
in royalty payments in the fiscal year 2006, compared to $77,000 in royalty
payments in 2005, as the sales upon which the royalty is based were reduced.&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'><b>Net Interest Income/Expense. </b>&nbsp;Net interest expense was $25,000 in
the year ended June 30, 2006, compared to $21,000 in net interest income in the
prior year as the company incurred debt to fund its asset acquisitions in the
third quarter and had maintained a positive cash balance and debt-free status
in the first six months of the 2006 fiscal year and all of the 2005 fiscal
year.</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 28% for
the year ended June 30, 2006, compared to 24% for the year ended June 30,
2005.&nbsp; Our effective income tax rate in 2006 was increased compared to 2005
primarily due to the reversal of a deferred tax valuation allowance in 2005 of
$227,000 due to our sustained profitability.&nbsp; The deferred tax valuation
allowance was originally recorded in the year ended June 30, 2001.&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 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 $833,000 or $0.09 per share, basic and $0.08
per share diluted for the year ended June 30, 2006 compared to 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.&nbsp; This decrease is due to the high level of warranty costs as
discussed above and associated production inefficiencies.</p>

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

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

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

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

</div>



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style='page-break-before:always'>










<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:60%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Year Ended</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Year Ended</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">June 30, 2006</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">June 30, 2005</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Cash and cash equivalents</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$358,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$2,584,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Working Capital&#185;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$6,087,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$8,288,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Credit Line outstanding
  balance</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$900,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Tangible book value/common
  share&#178;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.81&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1.10&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Number of days of sales
  outstanding (DSO) in</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">accounts receivable at end
  of quarter&#179;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">66&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">75&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:medium none windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:medium none windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Year Ended</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Year Ended</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:medium none windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">June 30, 2005</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">June 30, 2005</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net cash provided by
  operations</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$55,000&nbsp;</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$557,000&nbsp;</font></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 - Net intangible asset (patents) - 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, 2006 decreased to approximately
$6.1 million compared to approximately $8.3 million at June 30, 2005 as $3.6
million of cash was used as payment for the Intraflow and Astromec asset
acquisitions made in 2006.&nbsp; Cash flow provided by operations was $55,000 in the
year ended June 30, 2006 compared to $557,000 for the year ended June 30,
2005.&nbsp; Cash was provided through continued profitability levels offset by
increases in inventory and accounts receivable reflecting the higher sales
levels at the end of the fiscal year 2006 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
2005, we renewed our credit facility with Wells Fargo Bank N.A. (&quot;Wells Fargo&quot;)
for borrowings up to $2,000,000.&nbsp; Its terms require monthly interest
payments at either the prime rate of interest (8.25% at June 30, 2006), or
LIBOR plus 2.50% (7.875% (one month) to 8.0% (three months) at June 30, 2006),
at our discretion, based on outstanding borrowings with no minimum interest
charge.&nbsp; The outstanding borrowings are secured by all assets of the
Company.&nbsp; There was $900,000 outstanding balance under the terms of this credit
facility as of June 30, 2006.&nbsp; The total remaining eligible borrowing
capacity at June 30, 2006 was $1,100,000.</p>



<p style='text-align:justify;text-indent:36.0pt'>In January
2006, we extended the credit facility and entered into a four year term note
with Wells Fargo for $1,000,000.&nbsp; Its terms require monthly interest
payments at either the prime rate of interest (8.25% at June 30, 2006), or
LIBOR plus 2.50% (7.875% (one month) to 8.0% (three months) at June 30, 2006),
at our discretion, based on outstanding borrowings.&nbsp; The principal
payments on the note are $20,833 per month.&nbsp; The outstanding borrowings are
secured by all assets of the Company.&nbsp; There was an outstanding balance of
$895,833 under the terms of this term note as of June 30, 2006.&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt'>In March 2006,
we entered into a ten year mortgage with Union Bank of California for
$1,650,000.&nbsp; Its terms require monthly interest payments at a fixed rate
of 6.73% based on outstanding borrowings.&nbsp; The principal payments on the
mortgage note are based on a 25 year amortization of the note and are $11,379
per month beginning May 1, 2006.&nbsp; The outstanding borrowings are secured by our
  Carson City land and building.&nbsp; There was $1,645,737 outstanding balance
under the terms of this mortgage as of June 30, 2006.&nbsp;</p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p style='text-align:center;'>-19-</p>

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<p style='margin-top:6.0pt;text-align:justify;text-indent:36.0pt'>There
are certain financial and non-financial covenants that we must meet to be in
compliance with the terms of the October 2005 Wells Fargo credit facility, as
amended, and the Union Bank mortgage.&nbsp; At June 30, 2006, 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, 2006, we had cash and cash equivalents of $358,000.&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) <i>Accounting for
Stock-Based Compensation</i> 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
and will have an earnings effect similar to that currently described in the
Note Nine of the consolidated financial statements. </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 <i>Inventory
Costs - an amendment of ARB No. 43, Chapter 4</i> 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 was our fiscal year ending June 30, 2006.&nbsp; This statement has not had a
material effect on our operations or reporting.</p>

<p style='text-align:justify;text-indent:36.0pt;line-height:
normal'>In March&nbsp;2005, the FASB issued
Interpretation No.&nbsp;47, <em>Accounting for Conditional Asset Retirement
Obligations-an interpretation of FASB Statement No.&nbsp;143 </em>(&quot;FIN 47&quot;).
FIN 47 clarifies the term conditional asset retirement obligation and requires
a liability to be recorded if the fair value of the obligation can be reasonably
estimated. The types of asset retirement obligations that are covered by FIN 47
are those for which an entity has a legal obligation to perform an asset
retirement activity; however the timing and/or method of settling the
obligation are conditional on a future event that may or may not be within the
control of the entity. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective for fiscal years ending after
December&nbsp;15, 2005. The Company adopted the provisions of FIN 47 during
fiscal 2006. No conditional asset retirement obligations were recognized and,
accordingly, the adoption of FIN 47 had no effect on the Company's consolidated
financial statements. </p>

<p style='text-align:justify;text-indent:36.0pt;line-height:
normal'>In May&nbsp;2005, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
No.&nbsp;154, <i>Accounting Changes and Error Corrections, a replacement of APB
Opinion No.&nbsp;20, Accounting Changes, and Statement No.&nbsp;3, Reporting
Accounting Changes in Interim Financial Statements </i>(SFAS 154). SFAS 154
provides guidance on the accounting for and reporting of accounting changes and
error corrections. It establishes, unless impracticable, retrospective
application as the required method for reporting a change in accounting
principle in the absence of explicit transition requirements specific to the
newly adopted accounting principle. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. The Company does not expect the adoption of SFAS 154 will have a
material effect on its consolidated financial position, consolidated results of
operations, or liquidity.</p>
	<p style='text-align:center;line-height:
normal'>-20-</p>

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style='page-break-before:always'>










<p style='text-align:justify;text-indent:36.0pt;line-height:
normal'>In June 2006, the FASB issued FIN
No.&nbsp;48, <i>Accounting for Uncertainty in Income Taxes - an interpretation
of FASB Statement No.&nbsp;109, </i>which clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with FASB Statement No.&nbsp;109, <i>Accounting for Income Taxes.
</i>The interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN No.&nbsp;48
requires recognition of tax benefits that satisfy a greater than 50%
probability threshold. FIN No.&nbsp;48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN No.&nbsp;48 is effective for us beginning July&nbsp;1,
2007. The Company does not expect the adoption of FIN No.&nbsp;48 will have a
material effect on its consolidated financial position, consolidated results of
operations, or liquidity.</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>

<table class=MsoNormalTable border=0 cellpadding=0
 style='border-collapse:collapse' width="65%">
 <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'>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_BALANCE_SHEETS_">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'>25
  </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'>27 </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 &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'>28
  </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'>29
  </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'>30
  </p>
  </td>
 </tr>
</table>

<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'>None</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'>&nbsp;The Chief
Executive Officer and Chief Financial Officer (the principal executive officer
and principal financial officer, respectively) conducted an evaluation of the
design and operation of our &quot;disclosure controls and procedures&quot; (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (&quot;Exchange Act&quot;)).&nbsp; Based on that evaluation for the quarter ended June
30, 2006, the Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures are not effective to ensure that
information required to be disclosed by use in the reports filed or submitted
by us under the Exchange Act is accumulated, recorded, processed, summarized
and reported to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, and 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, 2006, there were no changes in our 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, our internal controls over financial reporting. &nbsp;In the
fourth quarter of fiscal 2006,&nbsp;the Chief Executive Officer stepped down
from his&nbsp;position and on an interim basis the&nbsp;Chief Financial Officer
assumed the Chief Executive Officer position.&nbsp; As the two executive
positions were combined and held by one individual as of June 30, 2006, our
internal controls over financial reporting were not effective.&nbsp; We mitigated
this deficiency&nbsp;through&nbsp;a combination of&nbsp;increased documentation
and review of the financial statements by the Board. &nbsp;The Board of
Directors was available for consultation and was more active in the review of
the operating decisions and the review of the financial statements.&nbsp; </p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p style='text-align:center;'>-21-</p>

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



<p style='text-align:justify;text-indent:36.0pt'>&nbsp;On
April 12, 2006, the Company accepted the resignation and terminated the
employment agreement of Patrick Johnson as the Company's Chief Executive
Officer. Mr. Johnson remained with the Company as its Executive Vice President
and Chief Business Development Officer.&nbsp; He also remained on the Company's
Board of Directors.&nbsp; Mr. Jeff Ritchey, the Company's Chief Financial Officer,
served as interim Chief Executive Officer and continued his duties as Chief
Financial Officer, Treasurer and Secretary.&nbsp; On August 14, 2006.&nbsp; Mark P.
Murphy was appointed as the successor Chief Executive Officer and he assumed such
duties on August 31, 2006.&nbsp; Mr. Murphy is a director of the Company.&nbsp; Mr.
Ritchey resigned the Chief Executive Officer position as of August 30, 2006 and
remains with the Company as its Chief Financial Officer and Secretary.</p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p style='text-align:center;'>-22-</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 2006 Annual
Meeting of Shareholders to be filed with the SEC within 120 days after the end
of the fiscal year ended June 30, 2006 (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">-23-</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</a></b></p>





<p style='text-align:justify'><b>To the Stockholders and Board
of Directors of Pro-Dex, Inc.: </b></p>



<p style='text-align:justify;text-indent:36.0pt'>We have
audited the accompanying consolidated balance sheet of Pro-Dex, Inc. and
Subsidiaries (the Company) as of June 30, 2006 and 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, 2006.&nbsp; 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 audits. </p>



<p style='text-align:justify;text-indent:36.0pt'>We conducted
our audits 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. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting.&nbsp; Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. 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 audits provide a reasonable basis for our opinion. </p>



<p style='text-align:justify;text-indent:36.0pt'>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, 2006 and 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, 2006 in conformity with accounting principles generally accepted in
the United States of America. </p>





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



<p>Moss Adams LLP <br>
Los Angeles, California <br>
September 26, 2006</p>
	<p>&nbsp;</p>
	<p>&nbsp;</p>
	<p>&nbsp;</p>

<p align=center style='text-align:center'>-24-</p>

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

	<div align="left">

<table class=MsoNormalTable border=0 cellpadding=0 width=604
 style='width:90%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">PRO-DEX, INC.
  and SUBSIDIARIES</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">
	<a name="CONSOLIDATED_BALANCE_SHEETS_">CONSOLIDATED
  BALANCE SHEETS</a></font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p align=center style='text-align:center'><b><font size="2">&nbsp;</font></b></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </td>
 </tr>
 <tr style='height:27.0pt'>
  <td valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">

  </td>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align=center style='text-align:center'><i><font size="2">30-Jun-06</font></i></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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align=center style='text-align:center'><i><font size="2">30-Jun-05</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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><b><font size="2">ASSETS</font></b></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">Current 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 358,000
	</font> </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,584,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accounts receivable, net of
  allowance for doubtful accounts</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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p 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-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p 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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; of
  $40,000 at June 30, 2006 and $100,000 at June 30, 2005</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">3,841,000
	</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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">3,521,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Inventories, net </font> </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">3,980,000
	</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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">3,145,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Prepaid 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;91,000
	</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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">66,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Income tax 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">222,000
	</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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">96,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Deferred 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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">766,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">519,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><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:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">9,258,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">9,931,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:6.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p 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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">Property, plant, 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:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">3,726,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">1,156,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p 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-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p 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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Goodwill</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">2,931,000
	</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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">1,110,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Intangibles - Patents, net</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">1,417,000
	</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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">-
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Deferred income 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">378,000
	</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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">541,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Other </font> </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">44,000
	</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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">18,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total other assets
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">4,770,000
	</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">1,669,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:6.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">

  </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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p align="right">

  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="63%">
  <p><font size="2">Total assets</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17,754,000
	</font> </p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12,756,000
	</font> </p>
  </td>
 </tr>
 </table>

	</div>

<p align="center"><b>&nbsp;</b><i><font size="2">See notes to unaudited consolidated financial
  statements.</font></i></p>
	<p align="center">&nbsp;</p>
	<p align="center">&nbsp;</p>
	<p 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><b>&nbsp;</b></p>

	<div align="left">

<table class=MsoNormalTable border=0 cellpadding=0 width=623
 style='width:90%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">PRO-DEX, INC.
  and SUBSIDIARIES</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">CONSOLIDATED
  BALANCE SHEETS (con't)</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="64%" valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">&nbsp;</font></b></p>
  </td>
  <td width="17%" valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="18%" valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:27.0pt'>
  <td width="64%" valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="17%" valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><i><font size="2">30-Jun-06</font></i></p>
  </td>
  <td width="18%" 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><i><font size="2">30-Jun-05</font></i></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><b><font size="2">LIABILITIES AND SHAREHOLDERS' EQUITY</font></b></p>
  </td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Current liabilities:</font></p>
  </td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Line of credit</font></p>
  </td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 900,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&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;</font></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accounts payable</font></p>
  </td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">952,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">1,158,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accrued expenses</font></p>
  </td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">971,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">472,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Income taxes payable </font> </p>
  </td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">-&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">13,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Current portion of term note</font></p>
  </td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">250,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">-&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Current portion of real estate loan</font></p>
  </td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">27,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">-&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Current portion of &quot;patent&quot; deferred
  payable</font></p>
  </td>
  <td width="17%" 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">71,000&nbsp;</font></p>
  </td>
  <td width="18%" 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">-&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total current
  liabilities
	</font>

  </td>
  <td width="17%" valign=top style='border-left:1px solid #000000; border-top:medium none; border-bottom:medium none; border-right:1px solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  <font size="2">3,171,000</font></td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right"><font size="2">1,643,000&nbsp;</font></td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  &nbsp;
  </td>
  <td width="17%" valign=top style='border-top:medium none;
  border-left:1px solid #000000;border-bottom:medium none windowtext;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right"><font size="2">&nbsp;</font></td>
  <td width="18%" valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:medium none windowtext;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Long-term liabilities:</font></p>
  </td>
  <td width="17%" valign=top style='border-top:medium none;
  border-left:1px solid #000000;border-bottom:medium none windowtext;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="18%" valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:medium none windowtext;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Term note</font></p>
  </td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">646,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">-&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Real estate loan</font></p>
  </td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">1,619,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">-&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Patent deferred payable</font></p>
  </td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:1px solid #000000; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">245,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:1px solid #000000; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">-&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total long-term liabilities
	</font> </p>
  </td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">2,510,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">-&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td width="17%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total liabilities</font></p>
  </td>
  <td width="17%" valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:1px solid #000000;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">5,681,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:1px solid #000000;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">1,643,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td width="17%" valign=top style='border-left:1px solid;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt; border-top-style:none; border-top-color:inherit; border-bottom-style:none; border-bottom-color:windowtext' bordercolor="#000000">

  </td>
  <td width="18%" valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:medium none windowtext;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Commitments and contingencies </font> </p>
  </td>
  <td width="17%" valign=top style='border-left:1px solid;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt; border-top-style:none; border-top-color:inherit; border-bottom-style:none; border-bottom-color:windowtext' bordercolor="#000000">

  </td>
  <td width="18%" valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:medium none windowtext;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:.95pt'>
  <td width="63%" valign=top style='border-top:medium none;
  border-left:1px solid windowtext;border-bottom:medium none;border-right:medium none windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Shareholders' equity:</font></p>
  </td>
  <td width="17%" valign=top style='border-left:1px solid; border-right:1px solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt; border-top-style:none; border-top-color:inherit; border-bottom-style:none; border-bottom-color:inherit' bordercolor="#000000">

  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1px solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="63%" valign=top style='border-top:medium none windowtext;
  border-left:1px solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Common shares; no par value; 50,000,000 shares
  authorized;</font></p>
  </td>
  <td width="17%" valign=bottom style='border-left:1px solid windowtext;border-right:1px solid;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt; border-top-style:none; border-top-color:windowtext; border-bottom-style:none; border-bottom-color:inherit' bordercolor="#000000">

  </td>
  <td width="18%" valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:medium none windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="63%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,539,792 shares issued and outstanding June 30,
  2006 </font> </p>
  </td>
  <td width="17%" valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="18%" valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="63%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,449,396 shares issued and outstanding June 30,
  2005</font></p>
  </td>
  <td width="17%" valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">16,066,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">15,933,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="63%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accumulated deficit </font> </p>
  </td>
  <td width="17%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:1px solid #000000; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">(3,993,000)</font></p>
  </td>
  <td width="18%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1px solid #000000;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">(4,820,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="63%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td width="17%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="18%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="63%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total shareholders' equity</font></p>
  </td>
  <td width="17%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">12,073,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">11,113,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="63%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:1px solid #000000; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td width="17%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:1px solid #000000; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="18%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1px solid #000000;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="63%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:3px double #000000; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities and shareholders' equity</font></p>
  </td>
  <td width="17%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:3px double #000000; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 17,754,000&nbsp;</font></p>
  </td>
  <td width="18%" valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:3px double #000000;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12,756,000&nbsp;</font></p>
  </td>
 </tr>
 </table>

	</div>

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

<p align="center"><b>&nbsp;</b><i><font size="2">See notes to unaudited consolidated financial
  statements.</font></i></p>
	<p align="center">&nbsp;</p>
	<p 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><b>&nbsp;</b></p>

	<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=560
 style='width:85%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">PRO-DEX, INC.
  and SUBSIDIARIES</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">
	<a name="CONSOLIDATED_STATEMENTS_OF_OPERATIONS_">CONSOLIDATED
  STATEMENTS OF OPERATIONS</a></font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">Years ended June
  30</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">

  </td>
  <td nowrap colspan=2 valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><i><font size="2">&nbsp;</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align=center style='text-align:center'><i><font size="2">2006</font></i></p>
  </td>
  <td nowrap valign=top style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align=center style='text-align:center'><i><font size="2">2005</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">

  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Net sales </font> </p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 17,061,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 13,834,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">

  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p align="right">

  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  <p align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Cost of sales </font> </p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10,485,000&nbsp;</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,754,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Gross profit </font> </p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,576,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,080,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">

  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p align="right">

  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  <p align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Operating expenses: </font> </p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Selling </font> </p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,191,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><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
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; General and administrative expenses
	</font> </p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,230,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,091,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Research and development costs
	</font> </p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,009,000&nbsp;</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,740,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Total operating expenses </font> </p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,430,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,788,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">

  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p align="right">

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  <p align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Income from operations </font> </p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,146,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,292,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">

  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Other: </font> </p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p align="right">

  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Other income (expense), net </font> </p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (19,000)</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><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
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Royalty income </font> </p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><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; 51,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><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
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Interest income (expense), net
	</font> </p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(25,000)</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><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
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Total</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><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; 7,000&nbsp;</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><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
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">

  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p align="right">

  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Income before income taxes provision</font></p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,153,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,430,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">

  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p align="right">

  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Income taxes provision</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;326,000&nbsp;</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><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
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Net income</font></p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 827,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,849,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
	</font> </p>
  </td>
  <td nowrap valign=top style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Net Income per share:</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Basic</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.09&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;$&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
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Diluted</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.08&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;$&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
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  <p align="right">

  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Weighted average shares outstanding - basic</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,502,652&nbsp;</font></p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,106,846
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><font size="2">Weighted average shares outstanding - diluted</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,988,569&nbsp;</font></p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,650,980
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="64%">
  <p><i><font size="2">&nbsp;</font></i></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="18%">

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' width="16%">

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



	</div>

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












<table class=MsoNormalTable border=0 cellpadding=0 width=739
 style='width:100%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td colspan=11 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">PRO-DEX, INC.
  and SUBSIDIARIES</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=11 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">
	<a name="CONSOLIDATED_STATEMENTS_OF_SHAREHOLDERS_EQUITY_">CONSOLIDATED
  STATEMENTS OF SHAREHOLDERS' EQUITY</a></font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=11 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">Years ended June
  30</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td colspan=3 valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Preferred Shares</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td colspan=3 valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Common Shares</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Receivable</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Number </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Number </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Accumulated</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">for Stock</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">of Shares</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Amount</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">of Shares</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Amount</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Deficit</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Purchase</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Total</font></p>
  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:.95pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Balance 2004</font></p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">78,129 </font> </p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 283,000 </font> </p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">8,858,600 </font> </p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp; 15,075,000 </font> </p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp; (6,669,000)</font></p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp; (25,000)</font></p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp; 8,664,000 </font> </p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:.95pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Warrants exercised</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">99,000 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">107,000 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">107,000 </font> </p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Options exercised</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">413,667 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">468,000 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">468,000 </font> </p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Services received</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">25,000 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">25,000 </font> </p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Preferred Stock converted</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">(78,129)</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">(283,000)</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">78,129 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">283,000 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;&nbsp;
	</font> </p>
  </td>
 </tr>
 <tr style='height:.95pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:.95pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net Income</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">1,849,000 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">1,849,000 </font> </p>
  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Balance 2005</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">9,449,396 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp; 15,933,000 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp; (4,820,000)</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$ 11,113,000 </font> </p>
  </td>
 </tr>
 <tr style='height:25.5pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:25.5pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Warrants exercised</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 50,000 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 107,000
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 107,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:25.5pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Options exercised</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 40,396 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 26,000
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 26,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  &nbsp;</td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  &nbsp;</td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net Income</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 827,000
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 827,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td valign=bottom style='border-bottom:1px solid #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td valign=bottom style='border-bottom:1px solid #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-bottom:1px solid #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td valign=bottom style='border-bottom:1px solid #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-bottom:1px solid #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-bottom:1px solid #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-bottom:1px solid #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td valign=bottom style='border-bottom:1px solid #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td valign=bottom style='border-bottom:1px solid #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-bottom:1px solid #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Balance 2006</font></p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">9,539,792 </font> </p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp; 16,066,000 </font> </p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp; (3,993,000)</font></p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -
	</font> </p>
  </td>
  <td valign=bottom style='border-bottom:3px double #000000; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$ 12,073,000 </font> </p>
  </td>
 </tr>
 </table>



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

<p align=center style='text-align:center'><font size="2">See notes to consolidated financial statements.</font></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'>










	<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=629
 style='width:95%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">PRO-DEX, INC.
  and SUBSIDIARIES</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">
	<a name="CONSOLIDATED_STATEMENTS_OF_CASH_FLOWS_">CONSOLIDATED
  STATEMENTS OF CASH FLOWS</a></font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">Years ended June
  30</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><i><font size="2">2006</font></i></p>
  </td>
  <td nowrap valign=top style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><i><font size="2">2005</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Cash Flows from Operating Activities: </font> </p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net Income</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 827,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,849,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Adjustments to reconcile net income to net cash used
  in operating activities:</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Depreciation and amortization
	</font> </p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 356,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 348,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loss on disposal</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Recovery of) Provision for doubtful accounts</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (60,000)</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 60,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Recovery of) Reserve for obsolete inventory</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 502,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (18,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stock based compensation</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&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 nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred taxes</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (84,000)</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 521,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Changes in:</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  &nbsp;</td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Increase) in accounts receivable</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (259,000)</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1,212,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Increase) in inventories</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1,336,000)</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (585,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Increase) decrease in prepaid expenses</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (25,000)</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&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 nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Increase) in other assets</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(26,000)</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><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 nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 292,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 453,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Decrease) in income taxes payable</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (139,000)</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (893,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net Cash provided by Operating Activities </font> </p>
  </td>
  <td nowrap valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 55,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 557,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Cash Flows From Investing Activities: </font> </p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Acquisition of Astromec, net of assets acquired</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2,398,000)</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Proceeds from equipment sale</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Purchase of equipment and leasehold improvements</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (642,000)</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (474,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Purchase of Intangible Assets - Patents related to
  Interflow</font></p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1,167,000)</font></p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net Cash (used in) Investing Activities </font> </p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (4,206,000)</font></p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (474,000)</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Cash Flows from Financing Activities:</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Principal payments on long-term
  shareholder borrowings </font> </p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (145,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Borrowing on Line of Credit</font></p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 900,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">-&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Borrowing on Term Note</font></p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,000,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">-&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Principal payments on Term Note</font></p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (104,000)</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">-&nbsp;&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Principal payments on Mortgage</font></p>
  </td>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (4,000)</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">- &nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Proceeds from option and warrant
  exercise</font></p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 133,000&nbsp;</font></p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 576,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net Cash provided by Financing Activities</font></p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,925,000&nbsp;</font></p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 431,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net (decrease) increase&nbsp; in Cash and Cash Equivalents
	</font> </p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2,226,000)</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 514,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Cash and Cash Equivalents, beginning of period </font> </p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,584,000&nbsp;</font></p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,070,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Cash and Cash Equivalents, end of period </font> </p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 358,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,584,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><i><font size="2">Supplemental
  Information</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Cash payments for interest</font></p>
  </td>
  <td nowrap valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 68,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Cash payments for income taxes </font> </p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 543,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 943,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><i><font size="2">Non-Cash
  Disclosure of Investing and Financing Activities</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Long term payable incurred in acquisition of intangible
  assets</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 316,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&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>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Acquisition of building and land - real estate loan</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,650,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&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>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Intravantage deferred payable</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 317,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&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>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

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



	</div>



<p align=center style='text-align:center;text-autospace:none'><i>See notes to consolidated financial statements.</i></p>
	<p align=center style='text-align:center;text-autospace:none'><i>-</i>29<i>-</i></p>
	<p align=center style='text-align:center;text-autospace:none'>&nbsp;</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, 2006 and 2005</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., specializes in bringing speed to
market in the development and manufacture of technology-based solutions that
incorporate embedded motion control, miniature rotary drive systems and
fractional horsepower DC motors, serving the medical, dental, semi-conductor,
scientific research and aerospace markets. Pro-Dex's products are found in
hospitals, dental offices, medical engineering labs, commercial and military
aircraft, scientific research facilities and high tech manufacturing operations
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
subsidiaries, Pro-Dex Astromec, Inc., and Pro-Dex Management, Inc.&nbsp; Pro-Dex
Management, Inc. is a non-operating subsidiary.&nbsp; All significant inter-company
accounts and transactions 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 $141,000 and $118,000 for the years ended June
30, 2006 and 2005, respectively.&nbsp; The Company recognizes shipping costs as cost
of sales as incurred.&nbsp; The Company incurred shipping charges of approximately
$118,000 and $79,000 for the years ended June 30, 2006 and 2005, respectively.&nbsp;
</p>



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



<p style='text-indent:36.0pt'>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. Changes in reserve for allowance for doubtful accounts
are as follows for the years ended June 30, 2006 and 2005:</p>
	<p style='text-autospace:none' 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'>










	<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=483
 style='width:65%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Balance at the beginning
  of the year</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$100,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$40,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Decrease in doubtful
  accounts</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (60,000)</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (16,000)</font></p>
  </td>
 </tr>
 <tr style='height:27.75pt'>
  <td valign=bottom style='border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;border-right:
  medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Provision charged to
  income, net of recoveries of $2,000 in 2006, and $0 in 2005 </font> </p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&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 nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 76,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Balance at the end of the
  year</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$40,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$100,000&nbsp;</font></p>
  </td>
 </tr>
</table>

	</div>

<p style='text-align:justify;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.&nbsp;
This allowance was reversed in 2006 as it was related to the products associated
with the Intravantage assets that we purchased in October, 2006.&nbsp; As part of
the purchase, product was returned and the receivable was eliminated.</p>



<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, 2006 and 2005:</p>

	<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=449
 style='width:65%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Raw Materials</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right><font size="2">$1,694,000 </font> </p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1,421,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Work in process</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 495,000
  </font> </p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 409,000
  </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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Development costs under
  contract</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 341,000
  </font> </p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 132,000
  </font> </p>
  </td>
 </tr>
 <tr style='height:15.0pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Finished goods</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,242,000
  </font> </p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,473,000
  </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Total</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$4,772,000 </font> </p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$3,435,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Reserve for slow moving or
  obsolete items</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (792,000)</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (290,000)</font></p>
  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Total inventories, net</font></p>
  </td>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$3,980,000 </font> </p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$3,145,000 </font> </p>
  </td>
 </tr>
</table>





	</div>





<p style='text-align:justify;text-autospace:none'>Changes in
reserve for slow moving inventory for the years ended June 30, 2006 and 2005 were
as follows:</p>



	<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=449
 style='width:65%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Balance at the beginning
  of the year</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$290,000 </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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$308,000 </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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Increased reserve</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 502,000
  </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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 75,000
  </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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Inventory disposed</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
  </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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (93,000)</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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Balance at the end of the
  year</font></p>
  </td>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$792,000 </font> </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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$290,000 </font> </p>
  </td>
 </tr>
</table>

	</div>

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










<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The warranty accrual is based on historical costs of warranty repairs and
expected future identifiable warranty expenses.&nbsp; We have had warranty expenses
in this fiscal year dealing with products introduced in the prior fiscal year.&nbsp;
As of June 30, 2006 we carried a total of $309,000 warranty accrual which was
comprised of &nbsp;$269,000 for future warranty expenses related to the products for
which we have had recent high expense levels and $40,000 for our legacy products
with a better defined warranty repair history.&nbsp; Warranty expenses are reflected
in the financial statements as Cost of Sales (&quot;COS&quot;).&nbsp; The warranty accrual and
expenses for the years ended June 30, 2006 and 2005 are presented below: </p>

	<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=512
 style='width:65%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Year Ended June 30,</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Beginning Balance</font></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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  40,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  40,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Charged to Expense</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (440,000)</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (72,000)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Additional accrual</font></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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  709,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  72,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Ending Balance</font></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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  309,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  40,000&nbsp;</font></p>
  </td>
 </tr>
</table>

	</div>

<p align=center style='text-align:center;text-autospace:none'>&nbsp;-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'><b>Property, Plant &amp;
Equipment</b></p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Property, plant and
equipment is recorded at cost and consist of the following as of June 30, 2006
and 2005: </p>



	<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=455
 style='width:60%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Land</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$757,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;&nbsp;
  </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Building</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,470,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
  </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Leasehold Improvements</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 455,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;453,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.0pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Equipment</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,980,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,559,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Total</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right><font size="2">$7,662,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right><font size="2">$4,012,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Accumulated Depreciation</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (3,936,000)</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; (2,856,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Total property, plant
  &amp; equipment, net</font></p>
  </td>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$3,726,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1,156,000&nbsp;</font></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: Building - 39 years, equipment -- 3-10 years; and 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 and Intangible Assets </b></p>



<p style='text-align:justify;text-indent:36.0pt'>The Company
accounts for Goodwill and Intangible Assets in accordance with 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.&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt'>We performed
impairment tests and recorded no impairment charges in fiscal years ended June
30, 2005 or 2006.&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, 2006 was impaired.&nbsp; Additionally, during the quarter ended June 30,
2006, management determined that there were no events or circumstances which
have occurred, that would indicate an impairment of the goodwill had occurred.</p>
	<div align="center">












<table class=MsoNormalTable border=0 cellpadding=0 width=455
 style='width:65%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Goodwill Associated With
  Micro Motors</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1,110,000 </font> </p>
  </td>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1,110,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Goodwill Associated With
  Astromec</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,821,000
  </font> </p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;
  </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Total goodwill, net</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$2,931,000 </font> </p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1,110,000 </font> </p>
  </td>
 </tr>
</table>





	</div>





<p style='text-align:justify;text-indent:36.0pt'>Intangible
assets include the patents associated with the October, 2005 Intravantage asset
purchase.&nbsp; Such patents are amortized over a 15 year period.&nbsp; Total
amortization expense in 2006 and 2005 was $66,000 and $0, respectively.&nbsp; Future
minimum amortization expenses for the fiscal years ending June 30 are:</p>



	<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=157
 style='width:20%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p><font size="2">2007</font></p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$99,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p><font size="2">2008</font></p>
  </td>
  <td 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 99,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p><font size="2">2009</font></p>
  </td>
  <td 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 99,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p><font size="2">2010</font></p>
  </td>
  <td 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 99,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; height:12.75pt; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt' align="center">
  <p><font size="2">2011</font></p>
  </td>
  <td 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 99,000&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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total</font></p>
  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$495,000&nbsp;</font></p>
  </td>
 </tr>
</table>





	</div>





<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, 2005 and 2006.&nbsp; The stock repurchase plan
is currently inactive as the market value per common share has remained above
$1.25.</p>
	<p 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'>












<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>Stock Options and Warrants</b></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'>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 35% to 42% in 2006, of 55% to
66% in 2005; risk-free interest rates of approximately 3.8% to 4.5% in 2006 and
3.3% to 3.8% in 2005; and expected lives of five years.&nbsp; </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 years ended
June 30, 2006 and 2005, respectively.</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:center;text-autospace:
none'>-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'>












	<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=632
 style='width:90%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net Income as reported</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$827,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1,849,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:38.25pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Add stock-based
  compensation expense included in reported net income, net of related tax
  effects</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <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;
  </font> </p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&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:57.75pt'>
  <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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">(Deduct) total stock-based
  employee compensation expense determined under fair value based method for
  all awards, net of related tax effects</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(99,000)</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (94,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Pro-forma net income</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$728,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1,755,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Basic earnings per share</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">As reported</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.09&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.20&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Pro-forma</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.08&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.19&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Diluted earnings per share</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">As reported</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.08&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.19&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Pro-forma</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.07&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.18&nbsp;</font></p>
  </td>
 </tr>
</table>



	</div>

<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 include, but are not limited to: revenue recognition, the allowance
for doubtful accounts, the warranty reserve, the reserve for slow moving or
obsolete inventories, the carrying value of long-lived and intangible assets
impairment of goodwill, and the recovery of deferred income tax assets.</p>



<p style='text-indent:36.0pt' align="justify">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 jurisdiction in which the Company operates and the period over which
the deferred tax assets will be recoverable.&nbsp; In the event that actual
results differ from these estimates or 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' align="justify"><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' align="justify"><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' 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-autospace:none'><b>Research and Development </b></p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>Company funded research and development expenses increased $269,000 to
$2,009,000 for the year ended June 30, 2006 from $1,740,000 for the year ended June
30, 2005, an increase of 15.5 percent.&nbsp; Consolidating Pro-Dex Astromec, the
Company's wholly owned subsidiary, accounted for $164,000 of the increase and
the remainder was attributable to increased internal costs and external
engineering consulting fees for product improvement, specialty design and
validation work.&nbsp; Company-funded research and development costs were as
follows:</p>



	<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=501
 style='width:65%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td width=239 nowrap valign=bottom style='width:179.0pt;padding:0pt .85pt 0pt .85pt;
  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 .85pt 0pt .85pt;height:12.75pt'>
  <p align=center style='text-align:center'><font size="2">Fiscal Year ended June 30,</font></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 .85pt 0pt .85pt;height:12.75pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=239 nowrap valign=bottom style='width:179.0pt;padding:0pt .85pt 0pt .85pt;
  height:12.75pt'>

  </td>
  <td width=99 nowrap valign=bottom style='width:74.5pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt .85pt 0pt .85pt;height:12.75pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td width=99 nowrap valign=bottom style='width:74.5pt;border:none;border-left:
  solid windowtext 1.0pt;padding:0pt .85pt 0pt .85pt;height:12.75pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
  <td width=64 nowrap valign=bottom style='width:48.0pt;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0pt .85pt 0pt .85pt;height:12.75pt'>
  <p align=center style='text-align:center'><font size="2">Increase</font></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 .85pt 0pt .85pt;height:12.75pt'>
  <p><font size="2">Research and Development
  Costs</font></p>
  </td>
  <td width=99 nowrap valign=bottom style='width:74.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt .85pt 0pt .85pt;height:12.75pt'>
  <p align=right style='text-align:right'><font size="2">$2,009,000 </font> </p>
  </td>
  <td width=99 nowrap valign=bottom style='width:74.5pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt .85pt 0pt .85pt;height:12.75pt'>
  <p align=right style='text-align:right'><font size="2">$1,740,000 </font> </p>
  </td>
  <td width=64 nowrap valign=bottom style='width:48.0pt;border:solid windowtext 1.0pt;
  border-left:none;padding:0pt .85pt 0pt .85pt;height:12.75pt'>
  <p align=center style='text-align:center'><font size="2">15.5%</font></p>
  </td>
 </tr>
</table>





	</div>





<p style='text-indent:36.0pt;text-autospace:
none' align="justify">Company-funded research and development supports the development of
generic rotary drive and motion control platforms.&nbsp; We 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; </p>










<p align="justify" style="text-indent: 36pt">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 when the contracted deliverable is
made, matching the cost to the revenue.&nbsp; </p>



<p align="justify" style="text-indent: 36pt">&nbsp;Customer-funded research and development provided
$71,000 in revenue in the year ended June 30, 2006, and $566,000 in revenue in
the year ended June 30, 2005, reflecting a decrease in development fees
billable during the quarter as engineering efforts were focused on upgrading
current products and supporting warranty work.&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-indent:36.0pt' align="justify">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, 2006, $54,000 was recognized as cost
of sales, compared to $144,000 recognized as cost of sales in the year ended
June 30, 2005, reflecting a decrease in costs associated with the development
fees billable during the quarter. </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 - BANK DEBT </b></p>

<p style='text-align:justify;text-indent:36.0pt'>In October
2005, we renewed our credit facility with Wells Fargo Bank N.A. (&quot;Wells Fargo&quot;)
for borrowings up to $2,000,000.&nbsp; Its terms require monthly interest
payments at either the prime rate of interest (8.25% at June 30, 2006), or
LIBOR plus 2.50% (7.875% (one month) to 8.0% (three months) at June 30, 2006),
at our discretion, based on outstanding borrowings with no minimum interest
charge.&nbsp; The outstanding borrowings are secured by all assets of the
Company.&nbsp; There was $900,000 outstanding balance under the terms of this credit
facility as of June 30, 2006.&nbsp; The total remaining eligible borrowing
capacity at June 30, 2006 was $1,100,000.</p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p 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 style='text-align:justify;text-indent:36.0pt'>In January
2006, we extended the credit facility and entered into a four year term note
with Wells Fargo for $1,000,000.&nbsp; Its terms require monthly interest
payments at either the prime rate of interest (8.25% at June 30, 2006), or
LIBOR plus 2.50% (7.875% (one month) to 8.0% (three months) at June 30, 2006),
at our discretion, based on outstanding borrowings.&nbsp; The principal
payments on the note are $20,833 per month.&nbsp; The outstanding borrowings are
secured by all assets of the Company.&nbsp; There was an outstanding balance of
$895,833 under the terms of this term note as of June 30, 2006.&nbsp; </p>



<p style='text-align:justify;text-indent:36.0pt'>In March 2006,
we entered into a ten year mortgage with Union Bank of California for
$1,650,000.&nbsp; Its terms require monthly interest payments at a fixed rate
of 6.73% based on outstanding borrowings.&nbsp; The principal payments on the
mortgage note are based on a 25 year amortization of the note and are $11,379
per month beginning May 1, 2006.&nbsp; The outstanding borrowings are secured by our
  Carson City land and building.&nbsp; There was $1,645,737 outstanding balance
under the terms of this mortgage as of June 30, 2006.&nbsp;</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 2005 Wells Fargo credit
facility, as amended, and the Union Bank mortgage.&nbsp; At June 30, 2006, we were
in compliance with all such covenants.</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-indent:36.0pt'>The Company leases its existing
office and warehouse facilities in Santa Ana, California and Beaverton, Oregon.&nbsp; The Santa Ana lease expires in June 2007 and the Beaverton lease expires in
October 2007.&nbsp; The Santa Ana lease includes two one year consecutive options to
extend the lease.&nbsp; The Beaverton facility has an option to renew for either a
three or five year term. &nbsp;These leases require the Company to pay insurance,
taxes, and other expenses related to the leased space.&nbsp; Total rent expense in
2006 and 2005 was $333,000 and $303,000, 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="35%">
 <tr style='height:10.75pt'>
  <td valign=top style='border:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">2007</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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$294,000</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">2008</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;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p style='margin-right:0pt' align="right"><font size="2">&nbsp;</font><u><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 38,000</font></u></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total</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;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt' align="right">
  <div style="width: 90px; height: 12px; border-bottom: 3px double #000000">
  <p align="right"><font size="2">&nbsp;$332,000</font></p>
  </div>
  </td>
 </tr>
</table>

	</div>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>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. 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.&nbsp;
Management is not aware of any actual, pending or threatened litigation at this
time.</p>

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

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

<p style='text-autospace:none' align="center">&nbsp;-36-</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>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, 2006 and 2005 are as follows: </p>



	<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=380
 style='width:60%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Fiscal Year ended June 30,
  </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Current:</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Federal</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 421,000&nbsp;
  </font> </p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 69,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">State</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (10,000)</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (9,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Deferred:</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Federal</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (91,000)</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">472,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">State</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:1px solid #000000; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1px solid #000000;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">49,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Provision for Income taxes</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.5pt double windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 326,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.5pt double windowtext;
  border-right:1.0pt solid windowtext;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 581,000&nbsp;</font></p>
  </td>
 </tr>
</table>

	</div>












<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:70%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Fiscal Year ended June 30,
  </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Federal income tax at the
  statutory rate</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 392,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 826,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Change in valuation
  allowance for deferred tax assets</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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;
  </font> </p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (227,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">State Income taxes, net of
  federal tax benefit</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (3,000)</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 77,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Tax Credits</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (43,000)</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (98,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Tax effect of
  non-deductible items</font></p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (4,000)</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Other</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (16,000)</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (3,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Provision for Income taxes</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.5pt double windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 326,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.5pt double windowtext;
  border-right:1.0pt solid windowtext;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 581,000&nbsp;</font></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, 2006 and 2005 are as follows: </p>



	<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=449
 style='width:55%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td colspan=2 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Current Deferred income
  tax assets </font> </p>
  </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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Fiscal Year ended June 30,
  </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></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;
  padding-left:.85pt; padding-right:.85pt; 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; padding-left:.85pt; padding-right:.85pt; 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </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;
  padding-left:.85pt; padding-right:.85pt; 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Deferred tax assets</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </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;
  padding-left:.85pt; padding-right:.85pt; 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Accrued expenses</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 231,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 139,000&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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Inventories</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 440,000&nbsp;</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 198,000&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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Income tax credit carry
  forwards</font></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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 124,000&nbsp;</font></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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 191,000&nbsp;</font></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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total deferred tax assets</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 795,000&nbsp;</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 528,000&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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </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;
  padding-left:.85pt; padding-right:.85pt; 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Deferred tax liabilities</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">State taxes</font></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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (29,000)</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (9,000)</font></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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total deferred tax
  liabilities</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (29,000)</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;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (9,000)</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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net Current Deferred tax
  assets</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.5pt double windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 766,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.5pt double windowtext;
  border-right:1.0pt solid windowtext;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 519,000&nbsp;</font></p>
  </td>
 </tr>
</table>



	</div>
	<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'>-37-</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=449
 style='width:75%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap colspan=2 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Long Term Deferred income
  tax assets </font> </p>
  </td>
  <td nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Fiscal Year ended June 30,
  </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="5%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="47%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="24%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td width="22%" nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="5%" nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="47%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="24%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="22%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap colspan=2 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Deferred tax assets</font></p>
  </td>
  <td width="24%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="22%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="5%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="47%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Intangible assets</font></p>
  </td>
  <td width="24%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 594,000&nbsp;</font></p>
  </td>
  <td width="22%" nowrap valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 793,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap colspan=2 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total deferred tax assets</font></p>
  </td>
  <td width="24%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;594,000&nbsp;</font></p>
  </td>
  <td width="22%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 793,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="5%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="47%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="24%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="22%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap colspan=2 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Deferred tax liabilities</font></p>
  </td>
  <td width="24%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="22%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="5%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="47%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">State taxes</font></p>
  </td>
  <td width="24%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (94,000)</font></p>
  </td>
  <td width="22%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (110,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="5%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="47%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Depreciation</font></p>
  </td>
  <td width="24%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (122,000)</font></p>
  </td>
  <td width="22%" nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (142,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap colspan=2 valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total deferred tax
  liabilities</font></p>
  </td>
  <td width="24%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (216,000)</font></p>
  </td>
  <td width="22%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (252,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="5%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="47%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="24%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="22%" nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Net Deferred tax assets</font></p>
  </td>
  <td width="24%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.5pt double windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 378,000&nbsp;</font></p>
  </td>
  <td width="22%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.5pt double windowtext;
  border-right:1.0pt solid windowtext;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 541,000&nbsp;</font></p>
  </td>
 </tr>
</table>





	</div>





<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The Company has tax credits of $124,000 and $191,000 for June 30, 2006
and 2005, 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.&nbsp; Management believes
that it is more likely than not that all deferred tax assets will be realized.</p>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The Company is going through an audit by the Internal Revenue Service
(IRS) for the fiscal year ending June 30, 2004.&nbsp; Management does not believe
there will be any material adjustment resulting from the audit.</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.&nbsp; The employee stock option plan had
1,500,000 options to purchase shares and the directors plan had 500,000 options
to purchase shares. &nbsp;There are 88,045 options to purchase shares remaining
under the employee option plan, and 240,000 options to purchase shares
remaining under the directors option plan for a total of 328,045 shares
remaining under both option plans at June 30, 2006 that are available to grant
in future years.&nbsp; Transactions involving the Company's stock options for the
years ended June 30, 2006 and 2005 are summarized as follows: </p>

	<div align="center">












<table class=MsoNormalTable border=0 cellpadding=0 width=656
 style='width:85%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:medium none;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:medium none;border-bottom:1.0pt solid windowtext;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">2005</font></p>
  </td>
 </tr>
 <tr style='height:25.5pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Weighted-Average</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Weighted-Average</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Fixed Options</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Shares</font></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-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Exercise Price</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Shares</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Exercise Price</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Outstanding at beginning
  of year</font></p>
  </td>
  <td valign=bottom style='border:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">1,046,816&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.40&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td valign=bottom style='border:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">1,441,405&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.24&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Granted</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 230,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.82&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 150,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.52&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Exercised</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (50,000)</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.81&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (413,667)</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.13&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.0pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Forfeited</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (22,500)</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.92&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (130,922)</font></p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.42&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Outstanding at end of year</font></p>
  </td>
  <td nowrap valign=bottom style='border:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,204,316&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.68&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">1,046,816&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.40&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Exercisable at end of year</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 900,566&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.43&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 823,691&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.37&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Weighted-average fair
  value per</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Option granted during
  the year</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1.08&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1.40&nbsp;</font></p>
  </td>
 </tr>
</table>





	</div>





<p style='text-indent:36.0pt;text-autospace:none'>&nbsp;</p>
	<p style='text-autospace:none' align="center">-38-</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-indent:36.0pt;text-autospace:none'>A further
summary concerning fixed options outstanding June 30, 2006, is as follows: </p>



	<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=582
 style='width:85%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td width="15%" nowrap valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap colspan=3 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:medium none;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Options Outstanding</font></p>
  </td>
  <td width="3%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:medium none;border-bottom:1.0pt solid windowtext;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Options Exercisable</font></p>
  </td>
 </tr>
 <tr style='height:25.5pt'>
  <td width="15%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="13%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="19%" valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Weighted-Average</font></p>
  </td>
  <td width="16%" valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Weighted-Average</font></p>
  </td>
  <td width="3%" valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="16%" valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Weighted-Average</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="15%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Range of</font></p>
  </td>
  <td width="13%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Number</font></p>
  </td>
  <td width="19%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Remaining</font></p>
  </td>
  <td width="16%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Exercise</font></p>
  </td>
  <td width="3%" valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Number</font></p>
  </td>
  <td width="16%" nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Exercise</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="15%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Exercise Price</font></p>
  </td>
  <td width="13%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Outstanding</font></p>
  </td>
  <td width="19%" valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Contractual Life</font></p>
  </td>
  <td width="16%" valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Price</font></p>
  </td>
  <td width="3%" valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Outstanding</font></p>
  </td>
  <td width="16%" valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">Price</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="15%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">$0.35 to $0.81 </font> </p>
  </td>
  <td width="13%" nowrap valign=bottom style='border:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 366,816 </font> </p>
  </td>
  <td width="19%" nowrap valign=bottom style='border:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">&nbsp;5.7 years
  </font> </p>
  </td>
  <td width="16%" nowrap valign=bottom style='border:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.63
  </font> </p>
  </td>
  <td width="3%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='border:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="center"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 346,816 </font> </p>
  </td>
  <td width="16%" nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.63
  </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="15%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">$1.08 to $1.42 </font> </p>
  </td>
  <td width="13%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 210,000 </font> </p>
  </td>
  <td width="19%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">&nbsp;5.8 years
  </font> </p>
  </td>
  <td width="16%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.27
  </font> </p>
  </td>
  <td width="3%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="center"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 210,000 </font> </p>
  </td>
  <td width="16%" nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.27
  </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="15%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">$1.66 to $2.18</font></p>
  </td>
  <td width="13%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 292,500 </font> </p>
  </td>
  <td width="19%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">&nbsp;5.1 years
  </font> </p>
  </td>
  <td width="16%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.02
  </font> </p>
  </td>
  <td width="3%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="center"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 228,750 </font> </p>
  </td>
  <td width="16%" nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.06
  </font> </p>
  </td>
 </tr>
 <tr style='height:15.0pt'>
  <td width="15%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">$2.44 to $3.30 </font> </p>
  </td>
  <td width="13%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 335,000 </font> </p>
  </td>
  <td width="19%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">&nbsp;8.7 years
  </font> </p>
  </td>
  <td width="16%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.81
  </font> </p>
  </td>
  <td width="3%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="center"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 115,000 </font> </p>
  </td>
  <td width="16%" nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.89
  </font> </p>
  </td>
 </tr>
 <tr style='height:15.0pt'>
  <td width="15%" valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="13%" nowrap valign=bottom style='border:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="19%" nowrap valign=bottom style='border:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="16%" nowrap valign=bottom style='border:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="3%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='border:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="16%" nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="15%" nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="13%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp; 1,204,316 </font> </p>
  </td>
  <td width="19%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><font size="2">&nbsp;6.9 years
  </font> </p>
  </td>
  <td width="16%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.68
  </font> </p>
  </td>
  <td width="3%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="center"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 900,566 </font> </p>
  </td>
  <td width="16%" nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.43
  </font> </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, 2006, warrants to acquire 100,000 shares of common stock were
outstanding. These warrants are fully vested, have a weighted-average exercise
price of $1.25, and with a weighted-average remaining life of 3.0 years.&nbsp; In
July 2005, warrants representing 13,000 common shares expired unused.&nbsp; In
October 2005, warrants representing 50,000 common shares were exercised in full
at a price of $2.13 for a total of $106,500.</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, leaving no Preferred Stock shares outstanding.&nbsp; We received no cash
proceeds from the conversion.</p>

<p style='text-align:justify'><b>Note 9 - 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=center>

<table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0 width=630
 style='width:80%;margin-left:18.9pt;border-collapse:collapse;border:medium none; '>
 <tr>
  <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'>

  </td>
  <td valign=top style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><u><font size="2">2006</font></u></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;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><u><font size="2">2005</font></u></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; 833,000</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,849,000</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Basic net income per common share:</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  <p 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-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp; Weighted average of common shares outstanding
  </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;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,502,652</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;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,106,846</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Basic net income per common share </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;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.09</font></p>
  </td>
  <td valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.20</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  <p 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-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Diluted net income
  per share:</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  <p 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-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp; Weighted average of common shares 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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,502,652</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,106,846</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities (options)
  </font> </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;454,553</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;502,704</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities (warrants)
  </font>
  </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;31,264</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;41,430</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-top:medium none;border-left:
  1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Weighted average number of common shares outstanding -
  Diluted</font></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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,988,569</font></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; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,650,980</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Diluted net income per common share </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;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.08</font></p>
  </td>
  <td valign=top style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.19</font></p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify'>&nbsp;</p>
	<p style='text-align:center'>-39-</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>Note 10 - MAJOR CUSTOMERS</b></p>

<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>The Company had two Major Customers (defined as a customer that
represents greater than 10% of the Company's total revenues) in the year ended
June 30, 2006 and had one Major Customer in the year ended June 30, 2005.&nbsp; One
of the Major Customers in 2006 was the same customer as in 2005.&nbsp;&nbsp; Net sales to
the two Major Customers in 2006 amounted to $5,696,000 and at June 30, 2006 the
accounts receivable included a balance of $1,100,000 due from these two Major
Customers.&nbsp; Net sales to the one 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.</p>



<p style='text-autospace:none'><b>NOTE 11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; INTRAVANTAGE ASSET ACQUISITION</b></p>

<p style='text-align:justify;text-indent:36.0pt'>On October 31,
2005, we entered into an Asset Purchase Agreement (the &quot;Purchase Agreement&quot;)
with IntraVantage, Inc., a Delaware corporation (&quot;IntraVantage&quot;), whereby the
Company purchased from IntraVantage certain of IntraVantage's assets related to
IntraVantage's dental products business, including all of IntraVantage's
intellectual property rights (the &quot;Intellectual Property&quot; and, collectively
with the other purchased assets, the &quot;Assets&quot;).&nbsp; The purchase price for the
Assets consisted of the following:</p>



	<ul>
		<li>
		<p style='margin-left:36.0pt;text-align:justify;'>$226,087 in cash paid to IntraVantage on October 31, 2005;</p>
		</li>
		<li>
		<p style='margin-top:12.0pt;margin-right:0pt;margin-bottom:
0pt;margin-left:36.0pt;margin-bottom:.0001pt;text-align:justify;'>$893,271 in cash paid to IntraVantage's bank on October 31, 2005
as full payoff and release of all of IntraVantage's credit obligations with
such bank; and</p></li>
		<li>
		<p style='margin-top:12.0pt;margin-right:0pt;margin-bottom:
0pt;margin-left:36.0pt;margin-bottom:.0001pt;text-align:justify;'>$400,000 to IntraVantage in annual installments of $100,000 in
cash payable on each of October 31, 2006, 2007, 2008 and 2009.</p></li>
	</ul>










<p style='margin-top:12.0pt;text-align:justify;text-indent:
36.0pt'>As further inducement for IntraVantage to enter into the Purchase Agreement,
</p>

	<ul>
		<li>
		<p style='margin-top:12.0pt;margin-right:0pt;margin-bottom:
0pt;margin-left:36.0pt;margin-bottom:.0001pt;text-align:justify;'>The Company also entered into an Exclusive License
Agreement and a Royalty Agreement with IntraVantage in conjunction with the
October 31, 2005 closing of the Purchase Agreement.&nbsp; The Exclusive License
Agreement grants to IntraVantage an exclusive, worldwide, irrevocable,
royalty-free and perpetual license to use the acquired Intellectual Property in
any non-dental related field of use.&nbsp; The Royalty Agreement requires that the
Company pay to IntraVantage certain royalty payments on revenues generated from
future sales of products by the Company which fall within the scope of,
incorporate, are a modification of or are substantially derived from one or
more of the patents included in the Intellectual Property.<br>
&nbsp;</p></li>
		<li>
		<p style='margin-left:36.0pt;text-align:justify;
'>The Company
agreed to terminate a supply agreement between the Company and IntraVantage,
along with all amendments thereto. Pursuant to this termination, IntraVantage
returned to the Company certain products previously delivered to IntraVantage
under the previously executed supply agreement in exchange for the Company
issuing to IntraVantage a credit memo of approximately $275,000, equal to the
full value of outstanding IntraVantage invoices related to the supply
agreement.</p></li>
	</ul>
	<p style='margin-left:36.0pt;text-align:justify;
'>&nbsp;</p>
	<p style='text-align:center;
'>-40-</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='margin-left:36.0pt;text-align:justify;
'>&nbsp;</p>
	<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=505
 style='width:60%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td nowrap colspan=2 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">INTRAVANTAGE</font></b></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap colspan=2 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">PURCHASE PRICE ALLOCATION</font></b></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">&nbsp;</font></b></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><b><font size="2">ASSETS</font></b></p>
  </td>
  <td nowrap valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Other assets:</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Intangible - patent, net</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">1,477,000 </font> </p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:6.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total assets</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,477,000
  </font> </p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:5.25pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><b><font size="2">LIABILITIES AND SHAREHOLDERS' EQUITY</font></b></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Deferred payment</font></p>
  </td>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">358,000 </font> </p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total liabilities</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">358,000 </font> </p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:6.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Commitments and contingencies </font> </p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total shareholders' equity</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">1,119,000 </font> </p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:9.75pt'>
  <td nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:2.25pt double windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities and shareholders' equity</font></p>
  </td>
  <td nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,477,000
  </font> </p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

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

	</div>



<p style='text-align:justify;text-autospace:none'><b>NOTE 12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ASTROMEC ASSET
ACQUISITION</b></p>










<p style='text-align:justify;text-indent:36.0pt'>&nbsp;On
January 5, 2006, we entered into an Asset Purchase Agreement with Astromec,
Inc., a Nevada corporation (&quot;Astromec&quot;), whereby the Company's wholly owned
subsidiary, Pro-Dex Astromec purchased from Astromec substantially all of
Astromec's assets.&nbsp; The purchase price for the assets was comprised of the
following consideration:</p>



	<ul>
		<li>
		<p style='margin-left:72.0pt;text-align:justify;
text-indent:-18.0pt'>$2,600,000 in cash paid to Astromec on January 5, 2006;<br>
&nbsp;</p></li>
		<li>
		<p style='margin-left:72.0pt;text-align:justify;
text-indent:-18.0pt'>$100,000 to be paid at the end of a six month period, subject to
adjustments based on the asset values presented in Astromec's audited closing
balance sheet; and<br>
&nbsp;</p></li>
		<li>
		<p style='margin-left:72.0pt;text-align:justify;
text-indent:-18.0pt'>Assumption of operating liabilities of approximately $300,000.</p>
		</li>
	</ul>



<p style='text-align:justify;text-indent:36.0pt;text-autospace:
none'>On January 4, 2006, our credit facility with Wells Fargo was amended to
allow for a $1,000,000 four year term loan in addition to the existing
$2,000,000 line of credit.&nbsp; The term loan is fully amortizing and requires
monthly principal and interest payments at either the prime rate of interest
(7.25% at March 31, 2005); or LIBOR plus 2.50% (6.90% (one month) to 7.04%
(three months) at March 31, 2005), at our discretion, based on the outstanding
balance.&nbsp; The outstanding borrowings are secured by all assets of the
Company.&nbsp; Pro-Dex used the full proceeds of the term loan toward financing the
Astromec asset purchase.</p>



<p style='text-indent:36.0pt;text-autospace:none'>The
consolidated Balance sheet, statements of operations and cash flows include the
Pro-Dex Astromec operations beginning January 5, 2006.</p>
	<p style='text-indent:36.0pt;text-autospace:none'>&nbsp;</p>
	<p style='text-autospace:none' align="center">-41-</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=505
 style='width:85%;margin-left:4.65pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td nowrap colspan=2 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">ASTROMEC</font></b></p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap colspan=2 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">PURCHASE PRICE
  ALLOCATION</font></b></p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="81%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">&nbsp;</font></b></p>
  </td>
  <td width="18%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><b><font size="2">ASSETS</font></b></p>
  </td>
  <td width="18%" nowrap valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Current assets:</font></p>
  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Cash and cash equivalents </font> </p>
  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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; 11,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accounts receivable</font></p>
  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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;341,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Inventories, net </font> </p>
  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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; 567,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Prepaid expenses </font> </p>
  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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; 9,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total current assets
  </font> </p>
  </td>
  <td width="18%" nowrap valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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; 928,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:6.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Property, plant, and equipment, net&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;</font></p>
  </td>
  <td width="18%" nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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; 299,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Other assets:</font></p>
  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Goodwill</font></p>
  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,747,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:6.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="18%" nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total assets</font></p>
  </td>
  <td width="18%" nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,974,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:5.25pt'>
  <td width="81%" nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="18%" nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><b><font size="2">LIABILITIES AND SHAREHOLDERS' EQUITY</font></b></p>
  </td>
  <td width="18%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Current liabilities:</font></p>
  </td>
  <td width="18%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accounts payable</font></p>
  </td>
  <td width="18%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 246,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accrued expenses</font></p>
  </td>
  <td width="18%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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; 58,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Deferred payment</font></p>
  </td>
  <td width="18%" nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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; 70,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total current liabilities
  </font> </p>
  </td>
  <td width="18%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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; 374,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="18%" nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Total liabilities</font></p>
  </td>
  <td width="18%" nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><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;374,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:6.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Commitments and contingencies </font> </p>
  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">Shareholders' equity:</font></p>
  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Common shares; no par value; 1,000 shares authorized</font></p>
  </td>
  <td width="18%" nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,600,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:9.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total shareholders' equity</font></p>
  </td>
  <td width="18%" nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,600,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:9.75pt'>
  <td width="81%" nowrap 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; padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="18%" nowrap 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:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  <p align="right">

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:2.25pt double windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities and shareholders' equity</font></p>
  </td>
  <td width="18%" nowrap 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;padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>
  <p align="right"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,974,000
  </font> </p>
  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="81%" nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="18%" nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

  </td>
  <td width="1%" nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0pt; padding-bottom:0pt'>

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

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

<p align=center style='text-align:center;text-autospace:none'><b>PRO-DEX, INC. AND SUBSIDIARIES<br>
Pro Forma Condensed Consolidated Statement of Operations
with Astromec<br>
for the Year Ended June 30, 2005<br>
(in thousands, except per share data)</b></p>

<div align=center>

<table class=MsoNormalTable border=0 cellpadding=0 width=433
 style='width:55%;border-collapse:collapse'>
 <tr style='height:13.5pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td width=106 nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">Pro-Dex</font></b></p>
  </td>
  <td width=0 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">Astromec</font></b></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">Totals</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p><font size="2">Sales</font></p>
  </td>
  <td width=106 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$13,834 </font> </p>
  </td>
  <td width=0 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$2,517 </font> </p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$16,351 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td width=106 nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td width=0 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p><font size="2">Net income (loss)</font></p>
  </td>
  <td width=106 nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$&nbsp; 1,849</font></p>
  </td>
  <td width=0 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$&nbsp;&nbsp; (92)</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$ 1,757</font></p>
  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td width=106 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td width=0 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p><font size="2">Net Income Per Share -
  Basic </font> </p>
  </td>
  <td width=106 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.20</font></p>
  </td>
  <td width=0 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.19</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p><font size="2">Net Income Per Share -
  Diluted</font></p>
  </td>
  <td width=106 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.19</font></p>
  </td>
  <td width=0 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.18</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td width=106 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td width=0 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p><font size="2">Shares Outstanding - Basic</font></p>
  </td>
  <td width=106 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">9,107 </font> </p>
  </td>
  <td width=0 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">9,107 </font> </p>
  </td>
 </tr>
 <tr style='height:14.05pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p><font size="2">Shares Outstanding -
  Diluted</font></p>
  </td>
  <td width=106 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,651
  </font> </p>
  </td>
  <td width=0 nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,651
  </font> </p>
  </td>
 </tr>
</table>

</div>

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

<p style='text-autospace:none' align="center">&nbsp;-42-</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'>&nbsp;</p>

<p align=center style='text-align:center;text-autospace:none'><b>PRO-DEX, INC. AND SUBSIDIARIES<br>
Pro Forma Condensed Consolidated Statement of Operations
with Astromec<br>
for the Year Ended June 30, 2006<br>
(in thousands, except per share data)</b></p>

<div align=center>

<table class=MsoNormalTable border=0 cellpadding=0 width=433
 style='width:55%;border-collapse:collapse'>
 <tr style='height:13.5pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">Pro-Dex</font></b></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">Astromec</font></b></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=center style='text-align:center'><b><font size="2">Totals</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p><font size="2">Sales</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$17,061 </font> </p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$1,408 </font> </p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$18,469 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p><font size="2">Net income (loss)</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$&nbsp; 833</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$&nbsp;&nbsp; (21)</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$ 812</font></p>
  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
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  &nbsp;</td>
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  </td>
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  </td>
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  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p><font size="2">Net Income Per Share -
  Basic </font> </p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.09</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.09</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p><font size="2">Net Income Per Share -
  Diluted</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.08</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">$0.08</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  &nbsp;</td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p><font size="2">Shares Outstanding - Basic</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">9,502 </font> </p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">9,502 </font> </p>
  </td>
 </tr>
 <tr style='height:14.05pt'>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p><font size="2">Shares Outstanding -
  Diluted</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,989
  </font> </p>
  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>

  </td>
  <td nowrap valign=bottom style='padding-left:.8pt; padding-right:.8pt; padding-top:.8pt; padding-bottom:0pt'>
  <p align=right style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,989
  </font> </p>
  </td>
 </tr>
</table>

</div>

<p style='text-autospace:none'><b>NOTE 13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; REAL PROPERTY ACQUISITION</b></p>

<p style='text-align:justify;text-indent:36.0pt'>On
January 3, 2006, the Company entered into escrow with respect to a Purchase and
Sale Agreement with M. D. Glover, Inc., whereby the Company purchased 4.4 acres
of real property and a 20,000 square foot industrial building and related
improvements located in Carson City, Nevada for $2,200,000.&nbsp; Our Pro-Dex
Astromec operations are conducted at the acquired properties. &nbsp;On March 30, 2006,
the Company completed its purchase of the property and closed escrow. </p>



<p style='text-autospace:none'><b>NOTE 14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; SUBSEQUENT EVENT</b></p>

<p style='text-align:justify;text-indent:36.0pt'>On April
12, 2006, the Company accepted the resignation and terminated the employment
agreement of Patrick Johnson as the Company's Chief Executive Officer. Mr.
Johnson remained with the Company as its Executive Vice President and Chief
Business Development Officer.&nbsp; He also remained on the Company's Board of
Directors.&nbsp; Mr. Jeff Ritchey, the Company's Chief Financial Officer, served as
interim Chief Executive Officer and continued his duties as Chief Financial
Officer, Treasurer and Secretary.&nbsp; On August 14, 2006.&nbsp; Mark P. Murphy was
appointed as the successor Chief Executive Officer and he assumed the duties on
August 31, 2006.&nbsp; Mr. Murphy is a member of our Board of Directors.&nbsp; Mr.
Ritchey resigned the Chief Executive Officer position as of August 30, 2006 and
remains with the Company as its Chief Financial Officer and Secretary.</p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p style='text-align:justify;text-indent:36.0pt'>&nbsp;</p>
	<p style='text-align:center;'>-43-</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>EXHIBIT INDEX</b></p>

	<div align="left">












<table class=MsoNormalTable border=0 cellpadding=0 width=726
 style='width:90%;border-collapse:collapse'>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap>
  <p align=center style='text-align:center;text-autospace:none'><b>
	<font size="2">Exhibit
  No. </font> </b></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p align=center style='text-align:center;text-autospace:none'><b>
	<font size="2">Document
  </font>
  </b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">2.2</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">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)</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">2.3</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">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). </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">2.4</font><sup><font size="2">
	</font> </sup></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Merger
  agreement of Micro Motors Inc. into Pro-Dex Inc. dated June 28, 2004
  (incorporated herein by reference to Exhibit 2.4 of Form 10-KSB filed
  September 28, 2004).</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">2.5</font><sup><font size="2">
	</font> </sup></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Merger
  agreement of Oregon Micro Systems Inc. into Pro-Dex Inc. dated June 28, 2004
  (incorporated herein by reference to Exhibit 2.5 of Form 10-KSB filed
  September 28, 2004).</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">2.6</font><sup><font size="2">
	</font> </sup></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Merger
  agreement of PDMI Subsidiary B Inc. into Pro-Dex Management Inc. dated June
  28, 2004 (incorporated herein by reference to Exhibit 2.6 of Form 10-KSB
  filed September 28, 2004).</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">3.1</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Articles
  of Incorporation (incorporated herein by reference to Exhibit 3.1 to Pro-Dex,
  Inc. Registration Statement No. 33-74397). </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">3.2</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Bylaws
  (incorporated herein by reference to Exhibit 3.2 to Pro-Dex, Inc.
  Registration Statement No. 33-74397). </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.16</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">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). </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.17*</font><sup><font size="2">x</font></sup></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">1994
  Employees Stock Option Plan&nbsp; </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.18*</font><sup><font size="2"> x
	</font> </sup></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">1994
  Directors Stock Option Plan as amended </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.19*</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">2004
  Employees Stock Option Plan Charter (incorporated herein by reference to
  Company's Form S-8 filed January 23, 2004).</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.20*</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">2004
  Directors Stock Option Plan Charter (incorporated herein by reference to Form
  S-8 filed January 23, 2004).</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.26</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Audit
  Committee Charter (incorporated herein by reference to Company's Form 10-KSB
  filed October 1, 2002).</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.27</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">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). </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.28</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">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).</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.29</font></p>

  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">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).</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.30</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Micro
  Motors Credit and Security Agreements with WFBCI (incorporated herein by
  reference to Company's Form 10-KSB filed October 1, 2002). </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.31</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">OMS
  Credit and Security Agreements with WFBCI (incorporated herein by reference
  to Company's Form 10-KSB filed October 1, 2002). </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.32*</font><sup><font size="2">
	</font> </sup></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Employment
  agreement as amended with Patrick Johnson dated April 3, 2000, amended
  September 6, 2002&nbsp; (incorporated herein by reference to Exhibit 10.33 of Form
  10-KSB filed September 28, 2004).</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.33</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Asset
  Purchase Agreement, dated October 31, 2005 between IntraVantage, Inc.
  (incorporated herein by reference to the Form 8-K filed November 2, 2005)</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.34</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Exclusive
  License Agreement, dated October 31, 2005, between Pro-Dex, Inc. and
  IntraVantage, Inc. (incorporated herein by reference to the Form 8-K filed
  November 2, 2005)</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.35&nbsp; </font> </p>

  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Royalty
  Agreement, dated October 31, 2005, between Pro-Dex, Inc. and IntraVantage,
  Inc. (incorporated herein by reference to the Form 8-K filed November 2,
  2005)</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.36*</font><sup><font size="2">
	</font> </sup></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Employment
  agreement with Patrick Johnson dated November 22, 2005&nbsp; (incorporated herein
  by reference to the Form 8-K filed November 28, 2005)</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.37</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Asset
  Purchase Agreement, dated January 5, 2006 between Pro-Dex, Astromec, Inc.,
  Astromec, Inc., M.D. Glover, Inc., Malcolm D. Glover, Jr., and Malcolm D. Glover,
  Sr. (incorporated herein by reference to the Form 8-K filed January 6, 2006)</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap align="left">
  <p style='text-autospace:none'><font size="2">10.38</font></p>
  </td>
  <td valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Purchase
  and Sale Agreement and Escrow Instructions, dated January 3, 2006, between
  Pro-Dex, Inc. and M.D. Glover, Inc. (incorporated herein by reference to the
  Form 8-K filed January 6, 2006)</font></p>
  </td>
 </tr>
 </table>



	</div>



<p style='text-autospace:none' align="center">-44-</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'>&nbsp;</p>
	<p style='text-autospace:none'>&nbsp;</p>












<table class=MsoNormalTable border=0 cellpadding=0 width=726
 style='width:90%;border-collapse:collapse' id="table3">
 <tr>
  <td valign=top style='padding:0pt; ' nowrap>
  <p align=center style='text-align:left;text-autospace:none'><font size="2">10.39</font></p>
  </td>
  <td width=1058 valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Term
  Note, dated January 4, 2006, by Pro-Dex, Inc. and Wells Fargo Bank, National
  Association&nbsp; (incorporated herein by reference to the Form 8-K filed January
  6, 2006)</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap>
  <p align=center style='text-align:left;text-autospace:none'><font size="2">10.40</font></p>
  </td>
  <td width=1058 valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Loan
  Agreement, dated January 4, 2006, between Pro-Dex, Inc. and Wells Fargo Bank,
  National Association (incorporated herein by reference to the Form 8-K filed
  January 6, 2006)</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap>
  <p align=center style='text-align:left;text-autospace:none'><font size="2">10.41</font></p>
  </td>
  <td width=1058 valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Promissory
  Note, dated March 4, 2006, effective March 30, 2006, by Pro-Dex, Inc. in
  favor of Union Bank of California, National Association&nbsp; (incorporated herein
  by reference to the Form 8-K filed April 3, 2006)</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap>
  <p align=center style='text-align:left;text-autospace:none'><font size="2">10.42</font></p>
  </td>
  <td width=1058 valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Loan
  Agreement, dated March 4, 2006, effective March 30, 2006, by Pro-Dex, Inc. in
  favor of Union Bank of California, National Association&nbsp; (incorporated herein
  by reference to the Form 8-K filed April 3, 2006)</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap>
  <p align=center style='text-align:left;text-autospace:none'><font size="2">10.43*</font><sup><font size="2">
	</font> </sup></p>
  </td>
  <td width=1058 valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Termination
  of employment agreement with Patrick Johnson dated November 22, 2005&nbsp;
  (incorporated herein by reference to the Form 8-K filed April 24, 2006)</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap>
  <p align=center style='text-align:left;text-autospace:none'><font size="2">10.44*</font><sup><font size="2"> x</font></sup></p>
  </td>
  <td width=1058 valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Employment
  Agreement with Mark Murphy dated August 14, 2006</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap>
  <p align=center style='text-align:left;text-autospace:none'><font size="2">21.0</font><sup><font size="2">x
	</font> </sup></p>
  </td>
  <td width=1058 valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">List
  of Subsidiaries:&nbsp; Pro-Dex, Inc., Pro-Dex Astromec, Inc, Pro-Dex Management,
  Inc.</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap>
  <p align=center style='text-align:left;text-autospace:none'><font size="2">23.1</font><sup><font size="2"> x</font></sup></p>
  </td>
  <td width=1058 valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">Consent
  Letter of Moss Adams LLP</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap>
  <p align=center style='text-align:left;text-autospace:none'><font size="2">31.1</font><sup><font size="2"> x</font></sup></p>
  </td>
  <td width=1058 valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">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 </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap>
  <p align=center style='text-align:left;text-autospace:none'><font size="2">31.2</font><sup><font size="2"> x</font></sup></p>
  </td>
  <td width=1058 valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">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</font></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0pt; ' nowrap>
  <p align=center style='text-align:left;text-autospace:none'><font size="2">32</font><sup><font size="2"> x</font></sup></p>
  </td>
  <td width=1058 valign=top style='padding:0pt; '>
  <p style='text-autospace:none'><font size="2">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</font></p>
  </td>
 </tr>
</table>



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

<p style='line-height:1.0pt;text-autospace:none'><sup>x</sup> Filed Herewith</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'>-45-</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>



	<div align="left">



<table class=MsoNormalTable border=0 cellpadding=0
 style='border-collapse:collapse' width="40%">
 <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'>/
  s / Mark P. Murphy&nbsp;</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'>---------------------------------&nbsp;
  </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'>Mark
  P. Murphy&nbsp;</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'>President,
  Chief Executive Officer and Director</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'>(Principal
  Executive Officer)</p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0pt 0pt 0pt 0pt'>

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



	</div>



<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>

	<div align="left">

<table class=MsoNormalTable border=0 cellpadding=0 width=746
 style='width:75%;margin-left:-1.8pt;border-collapse:collapse'>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>

  <p style='text-autospace:none'>/
  s / Mark P. Murphy&nbsp;</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>

  <p style='text-autospace:none'>September
  27, 2006</p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>---------------------------------&nbsp;
  </p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>&nbsp;------------------------------------
  </p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>Mark
  P. Murphy&nbsp;</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>Date
  </p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>President,
  Chief Executive Officer and Director</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>

  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="2%"><p>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>(Principal
  Executive Officer)</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>

  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="2%"><p>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>/
  s / Jeffrey J. Ritchey&nbsp; </p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>September
  27, 2006</p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>---------------------------------&nbsp;
  </p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>&nbsp;-------------------------------------
  </p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>Jeffrey
  J. Ritchey&nbsp;</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>Date
  </p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>Treasurer,
  Chief Financial Officer &amp; Secretary</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>

  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="2%"><p>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>(Principal
  Financial and Accounting Officer) </p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>

  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="2%"><p>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>&nbsp;&nbsp; </p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>/
  s / George J. Isaac&nbsp; </p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>September
  27, 2006</p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>----------------------------------&nbsp;&nbsp;
  </p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>----------------------------------------
  </p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>George
  J. Isaac&nbsp;</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>&nbsp;Date
  </p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>Director</p>


  </td>
  <td valign=top style='width:55%;padding:0pt; '>

  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%">&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  &nbsp;</td>
  <td valign=top style='width:55%;padding:0pt; '>

  &nbsp;</td>
  <td valign=top style='width:2%;padding:0pt; '>

  &nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%">&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  &nbsp;</td>
  <td valign=top style='width:55%;padding:0pt; '>

  &nbsp;</td>
  <td valign=top style='width:2%;padding:0pt; '>

  &nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>


  <p style='text-autospace:none'>/
  s / Michael Mesenbrink&nbsp;</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>


  <p style='text-autospace:none'>September
  27, 2006</p>
  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="2%"><p>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>---------------------------------&nbsp;
  </p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>----------------------------------------</p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>Michael
  Mesenbrink&nbsp;</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>Date</p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>Director</p>


  </td>
  <td valign=top style='width:55%;padding:0pt; '>

  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%">&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  &nbsp;</td>
  <td valign=top style='width:55%;padding:0pt; '>

  &nbsp;</td>
  <td valign=top style='width:2%;padding:0pt; '>

  &nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>/
  s / Valerio Giannini&nbsp;<br>
	---------------------------------&nbsp;<br>
	Valerio
  Gianinni&nbsp;</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>September
  27, 2006<br>
	----------------------------------------</p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>Director</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>&nbsp;Date</p>
  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="2%"><p>&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%">&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  &nbsp;</td>
  <td valign=top style='width:55%;padding:0pt; '>
  &nbsp;</td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="2%">&nbsp;</td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>


  <p style='text-autospace:none'>/
  s / Patrick Johnson&nbsp;<br>
	---------------------------------&nbsp;<br>
	Patrick
   Johnson&nbsp;</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>


  <p style='text-autospace:none'>September
  27, 2006<br>
	----------------------------------------</p>
  </td>
  <td valign=top style='width:2%;padding:0pt; '>

  </td>
 </tr>
 <tr>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="1%"><p>&nbsp;</td>
  <td valign=top style='width:42%;padding:0pt; '>
  <p style='text-autospace:none'>Director</p>
  </td>
  <td valign=top style='width:55%;padding:0pt; '>
  <p style='text-autospace:none'>&nbsp;Date</p>
  </td>
  <td style='border:none;padding:0pt 0pt 0pt 0pt' width="2%"><p>&nbsp;</td>
 </tr>
 </table>

	</div>

<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'><b>End of Filing</b></p>
	<p align=center style='text-align:center'>-46-</p>

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

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

</div>



&nbsp;







</body>

</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>2
<FILENAME>ex10-171.htm
<TEXT>
<html>

<head>
<!-- Document Prepared With E-Services, LLC HTML Software-->
<!-- Copyright 2006 E-Services, LLC.-->
<!-- All rights reserved EDGAR2.com -->



<title>Ex10.17</title>



</head>

<body lang=EN-US>



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

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









<p class=MsoNormal align=center style='text-align:center'><b>PRO-DEX, INC.</b></p>

<p class=MsoNormal align=center style='text-align:center'><b>1994 AMENDED STOCK OPTION PLAN</b></p>



<p class=MsoNormal style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This
Stock Option Plan (the &quot;Plan&quot;) is adopted in consideration for services
rendered and to be rendered to Pro-Dex, Inc. and related companies.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify;text-indent:
- -18.0pt'>1.&nbsp;&nbsp; <u>Definitions</u>.&nbsp; The terms used in this Plan shall, unless otherwise
indicated</p>

<p class=MsoNormal style='text-align:justify'>or required by the particular
context, have the following meanings:</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'><u>Board</u>:&nbsp; &nbsp;&nbsp;
The Board of Directors of Pro-Dex, Inc.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'><u>Code</u>:&nbsp;&nbsp; &nbsp;&nbsp;
The Internal Revenue Code of 1986, as amended.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'><u>Common
Stock</u>: &nbsp;&nbsp;&nbsp;The no par value common stock of Pro-Dex, Inc.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Company</u>:&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pro-Dex, Inc., a corporation incorporated under the laws of California, and any successors in
interest by merger, operation of law, assignment or purchase of all or
substantially all of the property, assets or business of the Company.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Date of
Grant</u>:&nbsp;&nbsp;&nbsp; The date on which an Option (see below) is granted under the
Plan.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Disinterested
Person</u>:&nbsp; A director who has not been granted or awarded equity securities
pursuant to any plan of the Company or of any Related Company of the Company
during one year prior to that director's service as an administrator of the
Plan, except as otherwise provided in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the &quot;Exchange Act&quot;) with respect
to (a) participation in formula plans or ongoing securities acquisitions plans,
and (b) an election to receive securities for an annual retainer fee.</p>



<p class=MsoNormal style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Employee</u>:&nbsp;&nbsp;&nbsp;
An Employee is an employee of the Company or any Related Company.</p>



<p class=MsoFooter align="center">1</p>

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

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

</div>



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










<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Fair
Market Value</u>:&nbsp;&nbsp; The Fair Market Value of the Option Shares.&nbsp; Such Fair
Market Value as of any date shall be determined by the Option Committee as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date an Option is granted and shall mean (a) the
average (on that date) of the high and low prices of the Common Stock on the
principal national securities exchange by which the Common Stock is traded, if
the stock is then traded on a national securities exchange; or, (b) the last
reported sale price (on that date) of the Common Stock on NASDAQ, if the stock
is not then traded on a national securities exchange; or (c) the closing bid
price (or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the stock is not reported
on NASDAQ.&nbsp; However, if the Common Stock is not publicly-traded at the time an
Option is granted under the Plan, Fair Market Value shall be deemed to be the
fair value of the stock as determined in good faith by the Board or the Option
Committee, and a written record of the method of determining such value shall
be maintained.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Incentive
Stock Options</u> (&quot;ISOs&quot;):&nbsp; &quot;Incentive Stock Options&quot; as that term is defined
in Section 422A of the Code.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Key
Employee</u>:&nbsp;&nbsp;&nbsp;&nbsp; A person designated by the Option Committee who either is
employed by the Company or a Related Company (see below) and upon whose
judgment, initiative and efforts the Company or a Related Company is largely
dependent for the successful conduct of its business; provided, however, that
Key Employees shall not include those members of the Board who are not
employees of the Company or a Related Company.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Non-Incentive
Stock Options (&quot;Non-ISOs&quot;</u>):&nbsp;&nbsp;&nbsp;&nbsp; Options which are not intended to qualify
as &quot;Incentive Stock Options&quot; under Section 422A of the Code.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Option</u>:&nbsp;&nbsp;&nbsp;&nbsp;
The rights granted to an Employee to purchase Common Stock pursuant to the
terms and conditions of an Option Agreement (see below).</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Option
Agreement</u>: &nbsp;&nbsp;&nbsp;&nbsp;The written agreement (and any amendment or supplement thereto)
between the Company and an Employee designating the terms and conditions of an
Option.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Option
Committee</u>:&nbsp;&nbsp;&nbsp;&nbsp; With respect to grants of Options to Employees who are not
also Officers and/or Directors of the Company, the Plan shall be administered by
an Option Committee (&quot;Option Committee&quot;) composed of the Board or at least two
members of the Board.&nbsp; With respect to grants of Options to Employees who are
also Officers or Directors, the Plan shall be administered by a committee,
selected by the Board, consisting of two or more persons, each of whom is a
Disinterested Person.&nbsp; Such committee may also be deemed an Option Committee.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Option
Shares</u>:&nbsp;&nbsp;&nbsp;&nbsp; The shares of Common Stock underlying an Option granted to an
Employee.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Optionee</u>:&nbsp;&nbsp;&nbsp;&nbsp;
An Employee who has been granted an Option.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Related
Company</u>:&nbsp;&nbsp;&nbsp;&nbsp; Any corporation that is a &quot;parent corporation&quot; or a
&quot;subsidiary corporation&quot; with respect to the Company, as those terms are
defined in Section 425 of the Code.&nbsp; The determination of whether a corporation
is a Related Company shall be made without regard to whether the corporation or
the relationship between the corporation and the Company now exists or comes
into existence hereinafter.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify;text-indent:
- -18.0pt'>2.&nbsp;&nbsp; <u>Purpose and Scope</u>.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(a)&nbsp;&nbsp;&nbsp; The
purpose of this Plan is to advance the interests of the Company and
its shareholders by affording Employees an opportunity for investment in the
Company and the incentive advantages inherent in stock ownership in this
Company.</p>

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<p class=MsoNormal style='margin-left:72pt;text-align:justify;'>(b)&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;This
Plan authorizes the Option Committee to grant Options to purchase
shares of Common Stock to Employees selected by the Option Committee while
considering criteria such as employment position or other relationship with the
Company, duties and responsibilities, ability, productivity, length of service
or association, morale, interest in the Company, recommendations by
supervisors, and other matters.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify;text-indent:
- -18.0pt'>3.&nbsp;&nbsp;&nbsp;Administration of the Plan.&nbsp; The Plan shall be administered by the
Option Committee.&nbsp; The Option Committee
shall have the authority granted to it under this section and under each other
section of the Plan.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'>In accordance
with and subject to the provisions of the Plan, the Option Committee shall select the
Optionees, shall determine (a) the number of shares of Common Stock to be
subject to each Option, (b) the time at which each Option is to be granted, (c)
whether an Option shall be granted in exchange for the cancellation and
termination of a previously granted option or options under the Plan or
otherwise, (d) the purchase price for the Option Shares, (e) the option period,
and (f) the manner in which the Option becomes exercisable.&nbsp; In addition, the
Option Committee shall fix such other terms of each Option as the Option
Committee may deem necessary or desirable.&nbsp; The Option Committee shall
determine the form of Option Agreement to evidence each Option.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'>The Option
Committee from time to time may adopt such rules and regulations for carrying out the
purposes of the Plan as it may deem proper and in the best interests of the
Company.&nbsp; The Option Committee shall keep minutes of its meetings and those
minutes shall be distributed to every member of the Board.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'>The Board may
from time to time make such changes in and additions to the Plan as it may
deem proper and in the best interest of the Company; provided, however, that no
such change or addition shall impair any Option previously granted under the
Plan, and that the approval by the affirmative vote of the holders of a
majority of the Company's securities entitled to vote and represented at a
meeting duly held in accordance with the applicable laws of the State of
California, shall be required for any amendment which would:</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(a)&nbsp;&nbsp;&nbsp; modify
the eligibility requirements for receiving Options under the Plan;</p>

<p class=MsoNormal style='margin-left:90.0pt;text-align:justify;text-indent:
- -18.0pt'>(b)&nbsp;&nbsp;&nbsp; increase
the benefits accruing to Employees under the Plan; or</p>



<p class=MsoNormal style='margin-left:90.0pt;text-align:justify;text-indent:
- -18.0pt'>(c)&nbsp;&nbsp;&nbsp;&nbsp;increase
the number of shares of Common Stock that may be issued&nbsp;under the
Plan.</p>

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<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>All actions
taken and all interpretations and determinations made by the Option Committee in good
faith (including determinations of Fair Market Value) shall be final and
binding upon all Employees, the Company and all other interested persons.&nbsp; No
member of the Option Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan, and
all members of the Option Committee shall, in addition to rights they may have
as Directors of the Company be fully protected by the Company with respect to
any such action, determination or interpretation.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Number of Shares</u>.&nbsp; The Board is authorized to appropriate, issue
and sell for the purposes of the Plan, and
the Option Committee is authorized to grant Options with respect to, a total
number, not in excess of 1,500,000 shares of Common Stock, either treasury or
authorized but unissued, or the number and kind of shares of stock or other
securities which in accordance with Section 9 shall be substituted for the
1,500,000 shares or into which such 1,500,000 shares shall be adjusted.&nbsp; All or
any unsold shares subject to an Option that for any reason expires or otherwise
terminates, may again be made subject to Options under the Plan.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Eligibility</u>.&nbsp; Options which are intended to qualify as ISOs will
be granted only to Key Employees.&nbsp; Key
Employees and other Employees may hold more than one Option under the Plan and
may hold Options under the Plan and options granted pursuant to other plans or
otherwise.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Option Price</u>.&nbsp; The Option Committee shall determine the purchase
price for the Options Shares, provided
that the purchase price to be paid by Optionees for the Option Shares which are
intended to qualify as ISOs shall not be less than 100 percent of the Fair
Market Value of the Option Shares at the time the ISO is granted.&nbsp; The purchase
price to be paid by Optionees for Option Shares which are not intended to
qualify as ISOs may be less than the Fair Market Value of the Option Shares at
the time the Non-ISO is granted.&nbsp; The purchase price for the Option Shares
shall be a fixed, and cannot be a fluctuating, price.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Duration and Exercise of Options</u>.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Each
Option granted under the Plan shall be exercisable on such date or dates
and during such period and for such number of shares as shall be determined
pursuant to the provisions of the instrument evidencing such Option.&nbsp; The
Option Committee shall have the right to accelerate the date of exercise of any
Option, provided that the Option Committee shall not accelerate the exercise of
any ISO granted if such acceleration would violate the annual vesting
limitation contained in Section 422(d) (1) of the Code.</p>



<p class=MsoNormal style='margin-left:72pt;text-align:justify;'>(b)&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;Except
as otherwise permitted under Section 11, during the lifetime of
the Optionee, the Option shall be exercisable only by the Optionee; provided,
that in the event of the legal disability of an Optionee, the guardian or
personal representative of the Optionee may exercise the Option.&nbsp; However, if
the Option is an ISO it may be exercised by the guardian or personal
representative of the Optionee only if such guardian or personal representative
obtains a ruling from the Internal Revenue Service or an opinion of counsel to
the effect that neither the grant nor the exercise of such power is violative
of Section 422A(b) (5) of the Code.&nbsp; Any opinion of counsel must be both from
counsel arid in a form acceptable to the Option Committee.</p>

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<p class=MsoNormal style='margin-left:51.0pt;text-align:justify'>&nbsp;</p>





<p class=MsoNormal style='margin-left:72pt;text-align:justify;text-indent:
0pt'>(c)&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;The
Option Committee may determine whether any Option shall be exercisable
as provided in Paragraph (a) of this Section 7 or whether the Options shall be
exercisable in installments only; if the Option Committee determines the
latter, it shall determine the number of installments and the percentage of the
Option exercisable at each installment date.&nbsp; All such installments shall be
cumulative.</p>



<p class=MsoNormal style='margin-left:72pt;text-align:justify;text-indent:
0pt'>(d)&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;If
the Optionee ceases to be employed by either the Company or a Related
Company because of the death or permanent and total disability (as defined in
Section 22(e) (3) of the Code) of the Optionee, any Option held by the Optionee
at the time his employment ceases may be exercised within 90 days after the
date his employment ceased, but only to the extent that the Option was exercisable
according to its terms on the date the Optionee's employment ceased.&nbsp; After
such 90-day period, any unexercised portion of an Option shall expire.</p>





<p class=MsoNormal style='margin-left:72pt;text-align:justify;text-indent:
0pt'>(e)&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
the provisions of Paragraph (d) of this Section 7, if an
Optionee's employment by the Company or a Related Company ceases for any reason
other than the Optionee's death or permanent and total disability, any
unexercised portion of any Option held by the Optionee at the time his
employment ceases may be exercised within 30 days after the date his employment
ceased, but only to the extent that the Option was exercisable according to its
terms on the date the Optionee's employment ceased.&nbsp; After such date, any
unexercised portion of an Option shall expire.</p>



<p class=MsoNormal style='margin-left:72pt;text-align:justify;text-indent:
0pt'>(f)&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;Each Option shall be exercised in whole or part by delivering to the office of
the Treasurer of the Company written notice of the number of shares with
respect to which the Option is to be exercised and by paying in full the
purchase price for the Option Shares purchased as set forth in Section 8;
provided, that an Option may not be exercised in part unless the purchase price
for the Option Shares purchased is at least $2,000.</p>





<p class=MsoNormal style='margin-left:72pt;text-align:justify;text-indent:
0pt'>(g)&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;To
the extent required to qualify for the exemption provided by Rule 16b-3
under the Exchange Act, and any successor provision, at least six months must
elapse from the date of acquisition of an Option by any person who is subject
to the reporting requirements of Section 16(a) of the Exchange Act to the date
of exercise of such Option or disposition of the Option Shares.</p>

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<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Payment for Option Shares</u>.&nbsp; If the purchase price of the Option
Shares purchased by any Optionee at one
time exceeds $2,000, the Option Committee may permit all or part of the
purchase price for the Option Shares to be paid by the Optionee by (a)
delivering to the Company shares of the Company's common Stock previously owned
by the Optionee with a Fair Market Value as of the date of payment equal to the
portion of the purchase price for the Option Shares that the Optionee does not
pay in cash, (b) having shares withheld from the amount of shares to be
received by the Optionee, (c) delivering an irrevocable subscription agreement
obligating the Optionee to take and pay for the shares to be purchased within
one year of the date of such exercise, or (d) complying with any other payment
mechanisms as the Option Committee may approve from time to time.&nbsp; As a
condition to the exercise of any Option granted under this Plan, the Optionee
shall make such arrangements as the Option Committee may require for the
satisfaction of any federal, state or withholding tax obligations which may
arise in connection with such exercise.&nbsp; The issuance, transfer or delivery of
certificates of shares of Common Stock pursuant to the exercise or Options may
be delayed, at the discretion of the Option Committee, until the Option
Committee is satisfied that the applicable requirements of federal and state
securities laws and the withholding provisions of the Code have been met.&nbsp;
Until such person has been issued a certificate or certificates for the Option
Shares so purchased, he or she shall possess no rights of a recordholder with
respect to any of such shares.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Change in Stock, Adjustments, Inc</u>.</p>

<p class=MsoNormal style='margin-left:72pt;text-align:justify'>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
the event that each of the outstanding shares of Common Stock (other than
shares held by dissenting shareholders which are not changed or exchanged)
should be changed into, or exchanged for, a different number or kind of shares
of stock or other securities of the Company, or, if further changes or exchanges
of any stock or other securities into which the Common Stock shall have been
changed, or for which it shall have been exchanged, shall be made (whether by
reason of merger, consolidation reorganization, recapitalization, stock
dividends, reclassification, split-up, combination or shares or otherwise(,
then there shall be substituted for each share of Common Stock that is subject
to the Plan but not subject to an outstanding Option thereunder, the number and
kind of shares of stock or other securities into which each outstanding share
of Common Stock (other than shares held by dissenting shareholders which are
not changed or exchanged) shall be so changed or for which each outstanding
share of Common Stock (other than shares held by dissenting shareholders) shall
be exchanged.&nbsp; Any securities so substituted shall be subject to similar
successive adjustments.</p>
<p class=MsoNormal style='margin-left:72pt;text-align:justify'>&nbsp;</p>
<p class=MsoNormal style='margin-left:72pt;text-align:justify'>&nbsp;</p>



<p class=MsoFooter align="center">6</p>

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<p class=MsoNormal style='margin-left:72pt;text-align:justify'>In the event of
any such changes or exchanges, the Option Committee shall determine whether, in
order to prevent dilution or enlargement of rights, an adjustment should be
made in the number, or kind, or Option price of the shares or other securities
then subject to an Option or Options granted pursuant to the Plan and the
Option Committee shall make any such adjustment, and such adjustments shall be
made and shall be effective and binding for all purposes of the Plan.</p>



<p class=MsoNormal style='margin-left:90.0pt;text-align:justify;text-indent:
- -18.0pt'>(b)&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;The
Company completed a Plan of Reorganization and Merger (&quot;Reorganization&quot;)
whereby P-D Acquiring Corp., a California corporation, merged with and into the
Company in exchange for shares of Pro-Dex Holdings, Inc., a Colorado
corporation.&nbsp; Post Reorganization, the Plan is the Plan of Pro-Dex, Inc.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>10.&nbsp; <u>Relationship
to Employment</u>.&nbsp; Nothing contained in the Plan, or in any Option granted pursuant to the
Plan, shall confer upon any Optionee any right with respect to continuance of
employment by the Company, or interfere in any way with the right of the
Company to terminate the Optionee's employment at any time.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>11.&nbsp; <u>Nontransferability
of Option</u>.&nbsp; No Option granted under the Plan shall be transferable by the Optionee,
either voluntarily or involuntarily, except by will or the laws of descent and
distribution, pursuant to a qualified domestic relations order as defined in
the Code, or pursuant to the Employee Retirement Income Security Act or rules
promulgated thereunder; except that (a) Optionees who are not subject to
Section 16(b) of the Exchange Act may upon written notice transfer an Option
(i) to an Optionee's spouse, parents, siblings, or lineal descendants, or (ii)
to a trust for the benefit of the Optionee or any of the Optionee's spouse,
parents, siblings, or lineal descendants, or (iii) to any corporation or
partnership controlled by the Optionee; and (b) Optionees who are subject to
Section 16(b) of the Exchange Act may transfer Options to immediate family
members and family trusts.&nbsp; No Option shall be subject to execution, attachment
or similar process.&nbsp; Except as specifically provided herein, any attempt to
transfer the Option shall void the Option.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>12.&nbsp; <u>Rights
as a Shareholder</u>.&nbsp; No person shall have any rights as a shareholderwith respect to any shares
covered by an Option until that person shall become the holder of record of
such shares and, except as provided in Section 9, no adjustments shall be made
for dividends or other distributions or other rights as to which there is an
earlier record date.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>13.&nbsp; <u>Securities
Laws Requirements</u>.&nbsp; No Option Shares shall be issued unlessand until, in the opinion of the
Company, any applicable registration requirements of the Securities Act of
1933, as amended (&quot;Securities Act&quot;), any applicable listing requirements of any
securities exchange on which stock of the same class is then listed, and any
other requirements of law or of any regulatory bodies having jurisdiction over
such issuance and delivery, have been fully complied with.&nbsp; Each Option and
each Option Share certificate may be imprinted with legends reflecting federal
and state securities laws, restrictions and conditions, and the Company may
comply therewith and issue &quot;stop transfer&quot; instructions to its transfer agent
and registrar in good faith without liability.</p>



<p class=MsoFooter>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7</p>

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</u>









<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>14.&nbsp; <u>Disposition
of Shares</u>.&nbsp; Each Optionee, as a condition of exercise, shallrepresent, warrant and agree, in
a form of written certificate approved by the Company, as follows:&nbsp; (a) that
all Option Shares are being acquired solely for his own account and not on
behalf of any other person or entity; (b) that no Option Shares will be sold or
otherwise distributed in violation of the Securities Act, or any other
applicable federal or state securities laws; (c) that if he is subject to
reporting requirements under Section 16(a) of the Exchange Act, he will (i) not
violate Section 16(b) of the Exchange Act, (ii) furnish the Company with a copy
of each Form 4 and Form 5 filed by him, and (iii) timely file all reports
required under the federal securities laws; and (d) that he will report all
sales of Option Shares to the Company in writing on a form prescribed by the
Company.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>15.&nbsp; <u>Effective
Date of Plan; Termination Date of Plan</u>.&nbsp; The Plan shall be effective on the date of the
approval of the Plan by the affirmative vote of the holders of a majority of
the Company's securities entitled to vote and represented at a meeting duly
held in accordance with applicable law.&nbsp; The Plan shall terminate on May 25,
2004, except as to Options previously granted and outstanding under the Plan at
that time.&nbsp; No Options shall be granted after the date on which the Plan
terminates.&nbsp; The Plan may be abandoned or terminated at any earlier time by the
Board, except with respect to any Options then outstanding under the Plan.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>16.&nbsp; <u>Limitation
on Amount of Option</u>.&nbsp; With respect to ISOs, the aggregate FairMarket Value (determined as of
the time the ISO is granted) of the stock as to which an ISO may first become
exercisable in a particular calendar year may not exceed $100,000.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>17.&nbsp; <u>Ten
Percent Shareholder Rule</u>.&nbsp; With respect to ISOs, no Option may be granted to a Key Employee who, at
the time the Option is granted, owns stock possessing more than 10 percent of
the total combined voting power of all classes of stock of the Company or of
any &quot;parent corporation&quot; or &quot;subsidiary corporation&quot; as those terms are defined
in Section 425 of the Code, unless at the time the Option is granted the
purchase price for the Option shares is at least 110 percent of the Fair Market
Value of the Option Shares at the time the ISO is granted and such Option by
its terms is not exercisable after the&nbsp; expiration of five years from the Date
of Grant.&nbsp; For purposes of the preceding sentence, stock ownership shall be
determined as provided in Section 425 of the Code.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>18.&nbsp; <u>Withholding
Taxes</u>.&nbsp; The Company, or any Related Company, may take such steps as it may deem
necessary or appropriate for the withholding of any taxes which the Company, or
any Related Company, is required by any law or regulation or any governmental
authority, whether federal, state or local, domestic or foreign, to withhold in
connection with any Option including, but riot limited to, the withholding of
all or any portion of any payment or the withholding of issuance of Option
Shares to be issued upon the exercise of any Option.</p>



<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>19.&nbsp; <u>Change
in Control, Stock Dividends, Reorganization and Other Extraordinary Actions</u>.</p>



<p class=MsoFooter align="center">8</p>

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<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(a)&nbsp;&nbsp;&nbsp;&nbsp; If (i)
the company shall at any time be involved in a transaction described n
Section 424(a) of the Code (or any successor provision) or any &quot;corporate
transaction&quot; described in the regulations thereunder; (ii) the Company shall
declare dividends payable in, or shall subdivide or combine, its Common Stock
or (iii) any other event with substantially the same effect shall occur, the
Option Committee shall, with respect to each outstanding Option,
proportionately adjust the number of Option Shares and/or the exercise price
per share so as to preserve the rights of the Optionee substantially
proportionate to the rights of the Optionee prior to such event, and to the
extent that such action shall include an increase or decrease in the number of
Option Shares subject to outstanding Options, the number of shares available
under this Plan shall automatically be increased or decreased, as this case may
be, proportionately, without further action on the part of the Option
Committee, the Company or the Company's shareholders.</p>



<p class=MsoNormal style='margin-left:69.0pt;text-align:justify;text-indent:
3.0pt'>(b)&nbsp;&nbsp;&nbsp;&nbsp; If the Company is liquidated or dissolved, the Option Committee
may allow the holders of any outstanding Options to exercise all or any part of
the unvested portion of the Options held by them; provided, however, that such
Options must be exercised prior to the effective date of such liquidation or
dissolution.&nbsp; If the Option Holders do not exercise their Options prior to such
effective date, each outstanding Option shall terminate as of the effective
date of the liquidation or dissolution.</p>



<p class=MsoNormal style='margin-left:72pt;text-align:justify;'>(c)&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;The
grant of an Option shall not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or &nbsp;changes of its
capital or business structure, to merge, consolidate or dissolve, to liquidate
or to sell or transfer all or part of its business or assets.</p>



<p class=MsoNormal style='margin-left:72pt;text-align:justify;'>(d)&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;In
the event of a Change in Control (as defined below) of the Company, the
Option Committee may, in its discretion, accelerate all outstanding Options so
that they immediately become fully vested and immediately exercisable for the
duration of the Option Term.&nbsp; For purposes of this subsection (d), &quot;Change in
Control&quot; shall mean either one of the following:&nbsp; (i) when any &quot;person,&quot; as
such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than a
shareholder of the Company on the date of this Plan), the Company, a subsidiary
or a Company Employee Benefit Plan, (including any trustee of such Plan acting
as trustee) becomes, after the date of this Plan, the &quot;beneficial owner&quot; (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 35% or more of the combined voting power
of the Company's then outstanding securities; or (ii) the occurrence of a
transaction requiring shareholder approval, arid involving the sale of all or
substantially all of the assets of the Company or the merger of the Company
with or into another corporation.</p>

<p class=MsoFooter align="center">9</p>

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<p class=MsoNormal style='margin-left:72pt;text-align:justify;'>(e)&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;If
at any time the Company declares an Extraordinary Dividend,as defined
below, all Options shall accelerate and thereupon become fully vested and
immediately exercisable for the duration of the Option Term.&nbsp; For purposes of
this subsection (e), &quot;Extraordinary Dividend&quot; shall mean a cash dividend
payable to holders of record of the Common Stock in an amount in excess of 10%
of the then Fair Market Value of the Company's Common Stock.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify;text-indent:
- -18.0pt'>20.&nbsp; <u>Other
Provisions</u>.</p>

<p class=MsoNormal style='margin-left:72pt;text-align:justify;text-indent:
0pt'>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The use of a masculine gender in the Plan shall also include within its
meaning the feminine, and the singular may include the plural, and the plural
may include the singular, unless the context clearly indicates to the contrary.</p>



<p class=MsoNormal style='margin-left:72pt;text-align:justify;text-indent:
0pt'>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any expenses of administering the Plan shall be borne by the Company.</p>



<p class=MsoNormal style='margin-left:72pt;text-align:justify;text-indent:
0pt'>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This Plan shall be construed to be in addition to any and all other compensation
plans or programs.&nbsp; Neither the adoption of the Plan by the Board nor the
submission of the Plan to the shareholders of the Company shall be construed as
creating any limitations on the power of authority of the Board to adopt such
other additional incentive or other compensation arrangements as the Board may
deem necessary or desirable.</p>



<p class=MsoNormal style='margin-left:72pt;text-align:justify;text-indent:
0pt'>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The validity, construction, interpretation, administration and effect of the Plan
and its rules and regulations, and the rights of any and all personnel having
or claiming to have an interest therein or thereunder shall be governed by and
determined exclusively and solely in accordance with the laws of the State of
California; provided, however, if the Reorganization described in Section 9(b)
hereof shall be consummated, the laws of the State of Colorado shall govern and
determine construction, etc. of this Plan.</p>





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

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<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>3
<FILENAME>ex10-181.htm
<TEXT>
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<head>
<!-- Document Prepared With E-Services, LLC HTML Software-->
<!-- Copyright 2006 E-Services, LLC.-->
<!-- All rights reserved EDGAR2.com -->



<title>Exhibit 10.18</title>



</head>

<body lang=EN-US>



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

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









<p class=MsoNormal align=center style='text-align:center'><b>PRO-DEX, INC.</b></p>

<p class=MsoNormal align=center style='text-align:center'><b>DIRECTORS' STOCK OPTION PLAN</b></p>



<p class=MsoNormal style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This
Directors' Stock Option Plan (the &quot;Plan&quot;) adopted by Pro0Dex, Inc. (the
&quot;Company&quot;) on May 25, 1994, is amended this 27<sup>th</sup> day of February
1996.</p>



<p class=MsoNormal style='text-align:justify;text-indent:36.0pt'>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Definitions</u>.</p>

<p class=MsoNormal style='text-align:justify;text-indent:
72pt'>Unless otherwise indicated or required by the particular context, the
terms used in this Plan shall have the
following meanings:&nbsp; </p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Board</u>:&nbsp; &nbsp;&nbsp;
The Board of Directors of Pro-Dex, Inc.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Code</u>:&nbsp;&nbsp; &nbsp;&nbsp;
The Internal Revenue Code of 1986, as amended.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Common
Stock</u>: &nbsp;&nbsp;&nbsp;The no par value common stock of Pro-Dex, Inc.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Company</u>:&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pro-Dex, Inc., a corporation incorporated under the laws of California, and any successors in
interest by merger, operation of law, assignment or purchase of all or
substantially all of the property, assets or business of the Company.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Date
of Grant</u>:&nbsp;&nbsp;&nbsp; The date on which an Option (see below) is granted under the
Plan.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Fair
Market Value</u>:&nbsp;&nbsp; If, at any time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, &nbsp;Fair Market Value shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date an Option is granted and shall
mean (a) the average (on that date) of the high and low prices of the Common
Stock on the principal national securities exchange by which the Common Stock
is traded, if the stock is then traded on a national securities exchange; or,
(b) the last reported sale price (on that date) of the Common Stock on NASDAQ,
if the stock is not then traded on a national securities exchange; or (c) the
closing bid price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the stock is
not reported on NASDAQ.&nbsp; However, if the Common Stock is not publicly-traded at
the time an Option is granted under the Plan, Fair Market Value shall be as
determined in good faith by the Board after such consultation with outside
legal, accounting and other experts as the Board may deem advisable.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Nonemployee
Director:</u> A person who is a member of the Board of Directors and who is not
an employee of the Company.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Option:</u>&nbsp;&nbsp;
The rights to purchase Common Stock granted pursuant to the terms and
conditions of an Option Agreement (defined below</p>

<p class=MsoFooter align="center">1</p>

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<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Option
Agreement</u>:&nbsp;&nbsp;&nbsp;&nbsp; The written agreement (including any amendments or
supplements thereto) between the Company and a Nonemployee Director designating
the terms and conditions of an Option.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Option
Shares</u>: &nbsp;The shares of Common Stock underlying an Option granted to an
Employee.</p>



<p class=MsoNormal style='text-align:justify; text-indent:72pt'><u>Optionee</u>:&nbsp;
&nbsp;&nbsp;&nbsp;A Nonemployee Director who has been granted an Option.</p>



<p class=MsoNormal style='margin-left:54.0pt;text-align:justify;text-indent:
- -18.0pt'>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;<u>Purpose and Scope</u>.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(a)&nbsp;&nbsp;&nbsp; The
purpose of this Plan is to advance the interests of the Company and
its shareholders by affording Nonemployee Directors, whose participation and
guidance contribute to the successful operation of the Company, and affording
them an opportunity for investment in the Company and the incentive advantages
inherent in stock ownership in this Company.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(b)&nbsp; This Plan
authorizes that Options be granted to Nonemployee Directors according to the
formula set forth in Section 3 of this Plan.</p>



<p class=MsoNormal style='margin-left:54.0pt;text-align:justify;text-indent:
- -18.0pt'>3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;<u>Operation of the Plan</u>.&nbsp; </p>



<p class=MsoNormal style='margin-left:90.0pt;text-align:justify;text-indent:
- -18.0pt'>(a)&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;<u>Grant
of Options:&nbsp; Amount and Timing.</u>&nbsp; Options to purchase 20,000 in shares of
Common Stock shall be granted under the Plan to each Nonemployee Director at
the later to occur of (i) the date this Plan is adopted by the Company's
shareholders, or (ii) the date he or she is first elected or appointed a
Nonemployee Director of the Company.&nbsp; In addition, effective on the second and
third anniversary dates of commencement of service on the Board, options to
purchase an additional 15,000 shares shall automatically be granted to the
Optionee provided that, at that time, he or she is a Nonemployee Director.&nbsp; All
Options shall be exercisable only as set forth in Sections 3(c) and 6 below and
shall be subject to the other terms and conditions set forth in this Plan or
otherwise established by the Company.</p>



<p class=MsoNormal style='margin-left:90.0pt;text-align:justify;text-indent:
- -18.0pt'>(b)&nbsp;&nbsp; &nbsp;&nbsp;<u>Option
Purchase Price.</u>&nbsp; The exercise price for each Option Share shall be the
Fair Market Value of the Company's Common Stock on the Date of Grant.</p>



<p class=MsoNormal style='margin-left:36.0pt;text-align:justify;text-indent:
36.0pt'>(c)&nbsp; <u>Term.</u>&nbsp; Each Option shall expire ten years after the Date
of Grant,&nbsp; except that an
Option will expire, if not exercised, 90 days after the Optionee ceases to be a
director of the Company.</p>



<p class=MsoFooter align="center">2</p>

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<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(d)&nbsp;&nbsp;&nbsp; <u>Amendments.</u>&nbsp;&nbsp;&nbsp;
This Plan may be changed or modified from time to time provided, however, that,
(A) no such change or modification shall impair any Option previously granted
under the Plan; (B) the provisions relating to the amount, price and timing of
the Options shall not be amended more than once every six months other than to
comport with changes in the Code, the Employee Retirement Income Security Act,
or rules promulgated thereunder; and (C) the approval by the affirmative vote
of the holders of a majority of shares of the Company's securities present, or
represented, and entitled to vote at a meeting duly held in accordance with the
applicable laws of the State of Colorado, shall be required for any amendment
which would do any of the following:</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(i)&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;modify
the eligibility requirements for receiving Options under the Plan;</p>

<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(ii)&nbsp;&nbsp; except
as provided in Section 8 relative to capital changes, the number of shares
purchasable pursuant to the granting of any Option hereunder or the exercise
price of each Option;</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(iii)&nbsp;&nbsp;&nbsp; the
maximum term of Options granted;</p>



<p class=MsoNormal style='text-align:justify; margin-left:72pt'>(iv)&nbsp;&nbsp;&nbsp;
the minimum price at which Options may be granted;</p>



<p class=MsoNormal style='margin-left:100.5pt;text-align:justify;text-indent:
- -28.5pt'>(v)&nbsp;&nbsp;&nbsp;&nbsp; the dollar amount pursuant to which Options may be granted at any&nbsp;one
time;</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(vi)&nbsp;&nbsp;&nbsp;&nbsp; the
timing of Option Grants; or</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(vii)&nbsp;&nbsp;&nbsp; the
term of the Plan.</p>



<p class=MsoNormal style='margin-left:54.0pt;text-align:justify;text-indent:
- -18.0pt'>4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>Number of Shares</u>.&nbsp; </p>

<p class=MsoNormal style='text-align:justify; text-indent:36pt'>The Board is
authorized to appropriate, issue and sell for the purposes of the Plan, an aggregate maximum of 500,000
shares of Common Stock, including both treasury and newly issued shares, or the
number and kind of shares of stock or other securities which in accordance with
Section 8 shall be substituted for the 500,000 shares or into which such
500,000 shares shall be adjusted.&nbsp; All or any unsold shares subject to an
Option that for any reason expires or otherwise terminates before it has been
exercised, again may be made subject to other Options granted under the Plan.</p>



<p class=MsoNormal style='margin-left:54.0pt;text-align:justify;text-indent:
- -18.0pt'>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Eligibility</u>.&nbsp; </p>

<p class=MsoNormal style='text-align:justify'>Options shall be granted under
the Plan only to Nonemployee Directors provided that any Nonemployee Director
may waive his right to participate in the Plan.&nbsp; </p>



<p class=MsoNormal style='margin-left:54.0pt;text-align:justify;text-indent:
- -18.0pt'>6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Exercise of Options</u>.&nbsp; </p>



<p class=MsoNormal style='margin-left:90.0pt;text-align:justify;text-indent:
- -36.0pt'>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each Option granted pursuant to this Plan shall be exercisable in full
commencing six months after the Date of Grant. </p>

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

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<p class=MsoNormal style='margin-left:90.0pt;text-align:justify;text-indent:
- -36.0pt'>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise provided in Section 9, during the lifetime of the Optionee, the Option shall be exercisable only by the Optionee; provided that,
in the event of the legal disability of an Optionee, the guardian or personal
representative of the Optionee may exercise the Option.</p>



<p class=MsoNormal style='margin-left:90.0pt;text-align:justify;text-indent:
- -36.0pt'>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each Option shall be exercised in whole or in part by delivering to the
office of the Treasurer of the Company written notice of the number of shares
with respect to which the Option is to be exercised and by paying in full the
purchase price for the Option Shares as set forth in Section 7 herein;
provided, that an Option may not be exercised in part unless the purchase price
for the Option Shares purchased is at least $2,000.</p>



<p class=MsoNormal style='margin-left:90.0pt;text-align:justify;text-indent:
- -36.0pt'>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Option may be exercised, and no Option Shares may be sold,
transferred or otherwise disposed of for a period of at least six months
following the Date of Grant of the Option.</p>



<p class=MsoNormal style='margin-left:54.0pt;text-align:justify;text-indent:
- -18.0pt'>7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>Payment for Option Shares.</u></p>
<p class=MsoNormal style='margin-left:54.0pt;text-align:justify;'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Upon exercise of any Option, the aggregate exercise price shall be paid
to the Company in cash or by certified or cashier's check.&nbsp; For any single
purchase by an Optionee of Option Shares at a total purchase price in excess of
$2,000, the Company, in its sole discretion, upon request by the Optionee, may
permit all or part of the purchase price for the Option Shares to be paid by
(a) delivery to the Company for cancellation shares of the Common Stock
previously owned by the Optionee (&quot;Previously Owned Shares&quot;) with a Fair Market
Value as of the date of the payment equal to the portion of the purchase price
for the Option Shares that the Optionee does not pay in cash; (b) having shares
withheld from the amount of shares to be received by the Optionee; (c)
delivering an irrevocable subscription agreement obligating the Optionee to
take and pay for the shares to be purchased within one year of the date of such
exercise; or (d) complying with any other payment mechanism as the Company may
approve from time to time.&nbsp; Notwithstanding the above, an Optionee shall be
permitted to exercise his Option by delivering Previously Owned Shares only if
he has held, and provides appropriate evidence of such, the Previously Owned
Shares for more than six months prior to the date of exercise.&nbsp; This period
(the &quot;Holding Period&quot;) may be extended by the Company acting in its sole
discretion as is necessary, in the opinion of the Company, so that, under
generally accepted accounting principles, no compensation shall be considered
to have been or to be paid to the Optionee as a result of the exercise of the
Option in this manner.&nbsp; At the time the Option is exercised, the Optionee shall
provide an affidavit, and such other evidence and documents as the Company
shall request, to establish the Optionee's Holding Period.&nbsp; As indicated above,
an Optionee may deliver shares of Common Stock as part of the purchase price
only if the Company, in its sole discretion agrees, on a case by case basis, to
permit this form of payment.</p>



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

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<p class=MsoNormal style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Change
in Stock, Adjustments, Etc.</u></p>

<p class=MsoNormal style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In the
event that each of the outstanding shares of Common Stock (other than shares
held by dissenting shareholders which are not changed or exchanged) should be
changed into, or exchanged for, a different number or kind of shares of stock
or other securities of the Company, or if further changes or exchanges of any
stock or other securities into which the Common Stock shall have been changed,
or for which it shall have been exchanged, shall be made (whether by reason of
merger, consolidation, reorganization, recapitalization, stock dividends,
reclassification, split-up, combination of shares or otherwise) then there
shall be substituted for each share of Common Stock that is subject to the Plan
but not subject to an outstanding Option hereunder, the number and kind of
shares of stock or other securities into which each outstanding shares of
Common Stock (other than shares held by dissenting shareholders which are not
changed or exchanged) shall be so changed or for which each outstanding share
of Common Stock (other than shares held by dissenting shareholders) shall be so
changed or for which each such share shall be exchanged.&nbsp; Any securities so
substituted shall be subject to similar successive adjustments.</p>



<p class=MsoNormal style='margin-left:36.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
the event of any such changes or exchanges, (a) the number, or kind, or
exercise price of the Option Shares or other securities that are then subject
to an Option or Options granted pursuant to the Plan shall be deemed
automatically adjusted in order to prevent dilution or enlargement of rights
and (b) such adjustments shall be effective and binding for all purposes or the
Plan.</p>



<p class=MsoNormal style='margin-left:36.0pt;text-align:justify'>9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Nontransferability
of Option.</u></p>

<p class=MsoNormal style='margin-left:36.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Except
as herein provided, no Option granted under the Plan shall be transferable by
the Optionee, either voluntarily or involuntarily, except by will, by the laws
of descent and distribution, or pursuant to a qualified domestic relations
order as defined in the Code or the Employee Retirement Income Security Act or
rules promulgated thereunder; and no Option shall be subject to execution,
attachment or similar process.&nbsp; Any attempt to transfer an Option except as
otherwise herein provided shall void the Option.&nbsp; Notwithstanding anything
herein to the contrary, an Option may be transferred to an immediate family
member or a family trust if such transfer is then permitted by the rules
adopted under Section 16(b) of the Securities Exchange Act of 1934, as amended.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify;text-indent:
- -36.0pt'>10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Rights as a Shareholder.</u></p>

<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>No person
shall have any rights as a shareholder with respect to any shares covered by an
Option until that person becomes the holder of record of such shares and,
except as provided in Section 8, no adjustments shall be made for dividends or other
distributions or other rights as to which there is an earlier record date.</p>



<p class=MsoFooter align="center">5</p>

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<p class=MsoNormal style='margin-left:72.0pt;text-align:justify;text-indent:
- -36.0pt'>11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Securities Laws Requirements.</u></p>

<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>No Option
Shares shall be issued unless and until, in the opinion of the Company, any
applicable registration requirements of the Securities Act of 1933, as amended
(&quot;Securities Act&quot;), any applicable listing requirements of any securities
exchange on which stock of the same class is then listed, and any other
requirement of law or of any regulatory bodies having jurisdiction over such
issuance and delivery, have been fully complied with.&nbsp; Each Option Agreement
and each Option Share certificate may be imprinted with legends reflecting
federal and state securities laws restrictions and conditions, and the Company
may comply therewith and issue &quot;stop transfer&quot; instructions to its transfer
agent and registrar in good faith without liability.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify;text-indent:
- -36.0pt'>12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Disposition of Shares.</u></p>

<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>To the extent
reasonably requested by the Company, each Optionee, as a condition of
exercise, shall represent, warrant and agree, in a form of written certificate
approved by the Company, as follows:&nbsp; (a) that all Option Shares are being
acquired solely for his/her own account and not on behalf of any other person
or entity; (b) that no Option Shares will be sold or otherwise distributed in violation
of the Securities Act or any other applicable federal or state securities laws;
(c) that he/she will report all sales of Option Shares to the Company in
writing on a form prescribed by the Company; and (d) that if he/she is subject
to the reporting requirements under Section 16(a) of the Exchange Act (i) he
will not violate Section 16(b) of the Exchange Act, (ii) he will furnish the
Company with a copy of each Form 4 and Form 5 filed by him, and (iii) he will
timely file all reports required under the federal securities laws.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify;text-indent:
- -36.0pt'>13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Effective Date of Plan; Termination Date of Plan</u>.&nbsp; </p>

<p class=MsoNormal style='margin-left:36.0pt;text-align:justify;text-indent:
36.0pt'>The Plan shall be effective on the date of &nbsp;the Plan has been approved
by the Board of Directors and the shareholders of the Company and shall
terminate at midnight on a date which is ten years after the effective date,
except as to Options previously granted and outstanding under the Plan at that
time. No Options shall be granted after the date on which the Plan terminates.&nbsp;
The Plan may be abandoned or terminated at any earlier time by the affirmative
vote of the holders of a majority of the shares of Common Stock present, or
represented, and entitled to vote at a meeting duly held in accordance with the
applicable laws of the State of California, except with respect to any Options
then outstanding under the Plan.</p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify;text-indent:
- -36.0pt'>14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Withholding Taxes</u>. </p>

<p class=MsoNormal style='margin-left:36.0pt;text-align:justify;text-indent:
36.0pt'>The Option Agreement shall provide that the Company may take such steps
as it may deem necessary or appropriate for the withholding of any taxes which
the Company is required by any law or regulation or any governmental authority,
whether federal, state or local, domestic or foreign, to withhold in connection
with any Option including, but riot limited to, the withholding of all or any
portion of any payment or the withholding of issuance of Option Shares upon the
exercise of any Option.</p>



<p class=MsoFooter align="center">6</p>

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</u>









<p class=MsoNormal style='margin-left:72.0pt;text-align:justify;text-indent:
- -36.0pt'>15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Other Provisions.</u></p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>The following
provisions are also in effect under the Plan:</p>



<p class=MsoNormal style='margin-left:69.0pt;text-align:justify'>(a)&nbsp;&nbsp;&nbsp;&nbsp; The
use of a masculine gender in the Plan shall also include within its meaning the
feminine, and the singular may include the plural, and the plural may include
the singular, unless the context clearly indicates to the contrary. </p>



<p class=MsoNormal style='margin-left:69.0pt;text-align:justify;text-indent:
3.0pt'>(b)&nbsp;&nbsp;&nbsp;&nbsp; Any expenses of administering the plan shall be borne by the
Company.</p>



<p class=MsoNormal style='margin-left:72pt;text-align:justify;'>(c)&nbsp;&nbsp;&nbsp; &nbsp;This
Plan shall be construed to be in addition to any and all other compensation
plans or programs.&nbsp; The adoption of the Plan by the shareholders of the Company
shall not be construed as creating any limitations on the power or authority of
the Board to adopt such other additional incentive or other compensation
arrangements as the Board may deem necessary or desirable. </p>



<p class=MsoNormal style='margin-left:72.0pt;text-align:justify'>(d)&nbsp;&nbsp;&nbsp; The
validity, construction, interpretation, administration and effect of the Plan
and of its rules and regulations, and the rights of any and all persons having
or claiming to have an interest therein or thereunder shall be governed by and
determined exclusively and solely in accordance with the laws of the State of
Colorado. </p>





<p class=MsoNormal align=center style='margin-left:90.0pt;text-align:center'>*********</p>











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

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<TYPE>EX-10.44
<SEQUENCE>4
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<title>Exhibit 10.44</title>



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<p>&nbsp;</p>
<p>Mark P. Murphy<br>
21295 Clear Haven Dr.<br>
Yorba Linda, CA 92886</p>

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



<p>Dear Mark:</p>



<p>On behalf of the Board of Directors I am pleased to confirm
an offer of employment as Chief Executive Officer of Pro-Dex Inc. (&quot;the
Company&quot;) as an &quot;at-will&quot; employee, serving at the pleasure of the Board
of Directors and in accordance with the Company's Bylaws (and applicable law).&nbsp;
As Chief Executive Officer, you will perform the duties assigned to you from
time to time by the Board of Directors.&nbsp; You may also be required to serve as
the CEO and/or director of subsidiaries or other related entities of the
Company with no additional compensation. This position will initially be based
out of our Santa Ana, California office.</p>



<p><b>Salary<br>
</b>Your official start date will be August 31, 2006 (&quot;the
Starting Date&quot;).&nbsp; Your bi-weekly salary will be $10,769.23 which equals
$280,000 on an annualized basis , increasing annually by the All Urban
Consumers CPI&nbsp; (applicable local metropolitan area) for the preceding twelve
calendar months effective the first full pay period following each anniversary
of the Starting Date.&nbsp;&nbsp; </p>



<p><b>Benefits<br>
</b>For PTO purposes only (and only with respect to this
Agreement), you will be treated as having been employed on a full time basis
for five (5) years as of the Starting Date, and you will be eligible to
participate in benefits including health, dental and life insurance and
optional employee benefits available to all Company employees except
Company-wide employee bonuses or profit sharing plans. </p>



<p>You will receive reimbursement for ordinary and necessary
business expenses incurred in the ordinary course of business consistent with
the Company's policies applicable to all employees and subject to review by the
Company's audit committee.</p>



<p><b>Bonuses/incentive compensation<br>
</b>In addition to the foregoing salary and benefits, you will
be eligible for additional compensation as follows if you are still employed by
the Company on a full time basis (&quot;Continuing Employment Status&quot;) when the
conditions to earn such bonus are fully satisfied. </p>



<p>&nbsp;</p>

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2</p>

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<p style='margin-left:32.0pt;text-indent:-18.0pt'>1.&nbsp;&nbsp; <u>Annual
Bonus.&nbsp; </u>An Annual Bonus equal to (i) 0.75% of your annual salary, times
(ii) each one percent (or any portion thereof) increase in pre-tax earnings
(including extraordinary gains and losses) per share for fiscal years ending
after July 1, 2006 over the prior fiscal year.&nbsp; For example, if pre-tax
earnings per share increased by 18.5% and your salary was $280K at the time,
the Annual Bonus would equal $38,850 (0.75% times $280,000 times 18.5).&nbsp; The
Annual Bonus shall be payable within ten days after you have signed and the
Company has filed with the SEC the required Chief Executive Officer
certifications, without qualification, for Form 10-KSB (or Form 10-K, as the
case may be ) for the most recent fiscal year.&nbsp; Such Continuing Employment
Status shall not be required for additional compensation under this &quot;Annual
Bonus&quot; section in the event that during the period (i) following the conclusion
of the Company's fiscal year and&nbsp; (ii) prior to the Company's filing of Form
10-KSB (or Form 10-K, as the case may be), your employment is terminated by the
Company without &quot;Cause&quot; or you resign for &quot;Good Reason,&quot; each as defined
below):; If your employment has been terminated by the Company without Cause
prior to the time that you have signed such certifications, or by you for Good
Reason prior to the time that you have signed such certifications, the Annual
Bonus as set forth in this Section 1 which you have earned shall be payable
within thirty (30) days following the termination of your employment.&nbsp; If all
such filings are not signed and filed, except as specified above, the bonus
shall not be payable.</p>



<p style='margin-left:35.0pt'>The actual Annual Bonus for
fiscal year ending June 30, 2007 shall not exceed $25,000; and shall not exceed
$50,000 for fiscal year ending June 30, 2008.</p>





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<p style='margin-left:32.0pt;text-indent:-18.0pt'>2.&nbsp;&nbsp; <u>Second
Bonus.&nbsp; </u>A Second Bonus equal to the appreciation of an aggregate of 450,000
shares of the Company's common stock over the closing price of such number of
shares on the day preceding the Starting Date. Entitlement to this second bonus
shall vest at the rate of 33.333% per year commencing with the first
anniversary of the Starting Date (subject to acceleration in certain events as
provided below), and all or any part of each incremental vested portion shall
be exercisable within five years from the date such increment first vested and
payable in cash in the installments described below commencing on the earliest
of (i) 90 days written notice from you to the Company, based on the average
closing price of the Company's common shares, over the ten trading days immediately
preceding receipt of such written 90 day notice outside of any blackout periods
applicable to all insiders, (ii) termination of your employment (except for
termination of your employment by the Company for &quot;Cause&quot; &quot; or resignation by
you without Good Reason), based on the average closing price of the Company's
common shares over the ten trading days immediately preceding the date of
termination, outside of any blackout periods applicable to all insiders ) or
(iii) in case of a Liquidity Event as defined below, based on the price per
share received by the Company's shareholders in the Liquidity Event as
described herein. Payments of this Second Bonus shall be in quarterly
installments equal to 10% of the Company's pretax net income (and with respect
to the final quarterly payment, so much as may remain to be paid), including
extraordinary gains and losses, as reported in the Company's financial
statements contained within Form 10-QSB or Form 10-KSB (as the case may be) for
the preceding quarter, payable each quarter within thirty (30) days following
the determination of such pretax net income; provided, however, that any
payments of this Second Bonus which are earned but remain outstanding as of the
date of your termination/severance of employment shall be paid over a period of
twelve (12) months as set forth under &quot;Termination/Severance,&quot; below. The
unpaid portion shall bear no interest and shall become immediately due and
payable upon a Liquidity Event.</p>
<p style='margin-left:32.0pt;text-indent:-18.0pt'>&nbsp;</p>





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3</p>
<p style='margin-left:32.0pt;text-indent:-18.0pt'>&nbsp;</p>

<p style='margin-left:35.0pt'>This Second Bonus may be replaced
at the Company's sole option on or before February 28, 2007 with a grant of
340,000 restricted shares of Common Stock of the Company in accordance with an
equity incentive compensation plan if such a plan is approved by the Company's
shareholders at the Company's 2006 Annual Shareholders' Meeting (or other such
special shareholders' meeting of the Company) vesting at the rate of 85,000
shares per year commencing January 2, 2007 or the grant date, whichever is
later. Vested shares shall have no restrictions imposed with respect to their
sale or transfer except those required by laws or regulations.&nbsp; If the
restricted stock grant is pursuant to the Company's general equity incentive
plan for its key employees as approved by the Company's board of directors and
shareholders, then the Company shall on a reasonably expedited basis and
consistent with past practice, file a Registration Statement on Form S-8 with
the Securities and Exchange Commission. </p>



<p><b>Acceleration </b></p>

<p>In the event of a transaction in which the Company's
shareholders receive cash or marketable securities for their Company shares (a
&quot;Liquidity Event&quot;), the vesting of the unvested restricted shares or
portion of the second bonus will accelerate immediately prior to the Liquidity
Event as follows: 100% of the total grant of restricted shares or second bonus
if the consideration received by Pro-Dex shareholders is $5 per share or
greater; 80% if between $4 and $5; and 60% if between $3 and $4.&nbsp;&nbsp; All such
price per share amounts in this letter will be proportionately adjusted in the
event of a Company recapitalization such a stock split, stock dividend, reverse
split, or the like.&nbsp;&nbsp; </p>



<p><b>Termination/Severance</b></p>





<p>In the event you are terminated involuntarily by the Company
without &quot;Cause&quot; or resign with &quot;Good Reason&quot; as defined below, the Company
shall pay you your (i) salary up through the date of termination plus (ii)
accrued vacation plus (iii) severance equal to $280,000 and (iv) any Annual
Bonus or Second Bonus earned but not yet paid pursuant to this letter as of the
termination date (the date you are terminated without &quot;Cause&quot; or upon which you
resign with &quot;Good Reason&quot;), each of which shall be paid less applicable
withholding as required by law.&nbsp; With the exception of the earned amount of
your Annual Bonus (to be paid within thirty (30) days of your termination), the
severance payment referred to above shall be made in equal incremental
payments, consistent with the Company's usual payroll payment periods, over a
period of twelve (12) months immediately following your last day of employment
with the Company. You hereby acknowledge that such severance will be the total
and sole remedy for any claims by you, known or unknown, arising from your
employment with the Company and you will be required prior to the receipt of
such severance payments to execute a written separation agreement with the
Company containing a general release of claims against the Company in form and
content acceptable to both you and the Company and our respective counsel.&nbsp;
However, the release agreement will not alter your rights under the
indemnification agreement.</p>
<p>&nbsp;</p>
<p>&nbsp;</p>





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



<p>As used herein, the term termination for &quot;Cause&quot; shall mean
termination due to:</p>



<p>(i) your failure or
inability to perform your duties with the Company or a related entity;</p>

<p>(ii)
your failure to substantially follow and comply with the specific and lawful
directives of the Board or any officer of the Company or a related entity to
whom you report directly;</p>

<p>(iii)The
Board's determination on advice of counsel of your commission of an act of
fraud or dishonesty; your engagement in illegal conduct, gross misconduct or an
act of moral turpitude; or your material violation of any material written
policy, guideline, code, handbook or similar document governing the conduct of
directors, officers or employees of the Company or its related entities; or&nbsp;&nbsp;
</p>

<p>(iv)
a material breach by you of the terms of this letter.</p>



<p>As used herein, the term resignation for &quot;Good Reason&quot; shall
mean your resignation due to:</p>



<p>(i) a reduction in your salary as set
forth herein or failure of the Company to pay any amount owing to you hereunder
when due; or a material reduction in benefits provided to you under the terms
of this Letter;</p>

<p>(ii)
the Company's requiring you to be based full time in any office or location
outside of a sixty (60) mile radius from your current residence in Yorba Linda, California;</p>

<p>(iii)
your being requested by the Board to execute any documents or take any action
in violation of any laws or regulations applicable to the Company, commit an
act of fraud or dishonesty violation of any material written policy, guideline,
code, handbook or similar document governing the conduct of directors, officers
or employees of the Company or its related entities;</p>

<p>(iv)&nbsp;
a Liquidity Event, in which you are not being offered an executive position
with substantially comparable compensation, benefits and incentives with any
successor to the Company based in any office or location inside a sixty (60)
miles radius from your current residence in Yorba Linda, California provided
that such an offer has not been discouraged by you or your representative; or</p>

<p>(v)
a material breach by the Company of the terms of this Letter.</p>

<p>&nbsp;</p>





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<p align="right">5</p>





<p>In
case of a claim of &quot;Cause&quot; for termination or &quot;Good Reason&quot; for resignation,
the Board shall promptly notify you or you shall promptly notify the Board (as
the case may be) in writing of the existence of such Cause or Good Reason, and
if the basis of such claim is reasonably susceptible of cure and in fact is
fully cured within thirty (30) days, it shall no longer be grounds for
termination with &quot;Cause&quot; or &quot;Good Reason&quot; for resignation.&nbsp;
</p>



<p><u>Indemnification</u>.&nbsp;&nbsp; Company will continue its
commitment to indemnify you in accordance with the Company's standard
Indemnification Agreement for its officers and directors (which you have
previously executed in your capacity as a director of the Company). </p>



<p>By accepting this offer, you confirm your understanding that
your employment will be on an at-will basis meaning that either you or the
Company may terminate the employment relationship at any time for any reason
with or without notice or Cause, and that neither you nor the Company has
entered into any other agreement regarding the duration of your employment.&nbsp;
This Letter represents the full and exclusive understanding between us of the
matters set forth herein and there is no other agreement, written or oral,
which governs such matters.&nbsp;&nbsp; Please sign both copies of this letter to
indicate your acceptance of this offer and retain one copy for your records and
return the second copy to us.</p>
<p>&nbsp;</p>












<p>Sincerely,</p>



<table border="0" width="100%" id="table1" cellspacing="0" cellpadding="0">
	<tr>
		<td width="488">By: /s/ JEFF RITCHEY</td>
		<td width="743">Agreed to and accepted:</td>
	</tr>
	<tr>
		<td width="488">------------------------------------</td>
		<td width="743">----------------------------------</td>
	</tr>
	<tr>
		<td width="488">Jeff Ritchey&nbsp;</td>
		<td width="743">By: /s/ MARK P. MURPHY</td>
	</tr>
	<tr>
		<td width="488">Chief Financial Officer&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
		</td>
		<td width="743">Mark P. Murphy</td>
	</tr>
	<tr>
		<td width="488" height="24">PRO-DEX, INC. </td>
		<td width="743" height="24">Date: August 14, 2006&nbsp; </td>
	</tr>
	<tr>
		<td width="488">&nbsp;</td>
		<td>&nbsp;</td>
	</tr>
</table>

<p>&nbsp;</p>

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<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>5
<FILENAME>ex31-1.htm
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<head>
<title>EXHIBIT 31.1</title>
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<p><b><font size="2">EXHIBIT 31.1</font></b></p>



<p><font size="2">I, Mark P. Murphy, certify
that:</font></p>



<table border="0" width="100%" id="table1">
	<tr>
		<td width="3%" valign="top"><font size="2">1.</font></td>
		<td colspan="2" valign="top">



<p style='text-align:justify;'><font size="2">I have reviewed this
Form 10-KSB of Pro-Dex, Inc.;</font></p>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td colspan="2" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top"><font size="2">2.</font></td>
		<td colspan="2" valign="top">



<p style='text-align:justify;'><font size="2">Based on my knowledge,
this annual 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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td colspan="2" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top"><font size="2">3.</font></td>
		<td colspan="2" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td colspan="2" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top"><font size="2">4.</font></td>
		<td colspan="2" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td colspan="2" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">
		<p align="justify"><font size="2">a)</font></td>
		<td width="92%" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="92%" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">
		<p align="justify"><font size="2">b)</font></td>
		<td width="92%" valign="top">



<p style='text-align:justify;'><font size="2">[Omitted pursuant to SEC
Release 34-47986];</font></p>



		</td>
	</tr>
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		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="92%" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">
		<p align="justify"><font size="2">c)</font></td>
		<td width="92%" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="92%" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">
		<p align="justify"><font size="2">d)</font></td>
		<td width="92%" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="92%" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top"><font size="2">5.</font></td>
		<td colspan="2" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td colspan="2" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">
		<p align="justify"><font size="2">a)</font></td>
		<td width="92%" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="92%" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">
		<p align="justify"><font size="2">b)</font></td>
		<td width="92%" valign="top">



<p style='text-align:justify;'><font size="2">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>





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





<p><font size="2">Date: September 27,
2006&nbsp;&nbsp;&nbsp;</font></p>

<p style="margin-left: 4in"><font size="2"><u>/s/
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; MARK P. MURPHY </u><br>
Mark
P. Murphy<br>
Chief
Executive Officer</font></p>










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<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>6
<FILENAME>ex31-2.htm
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<head>
<title>EXHIBIT 31.2</title>
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<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>
<table border="0" width="100%" id="table1">
	<tr>
		<td width="3%" valign="top"><font size="2">1.</font></td>
		<td colspan="2" valign="top">



<p style='text-align:justify;'><font size="2">I have reviewed this
Form 10-KSB of Pro-Dex, Inc.;</font></p>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td colspan="2" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top"><font size="2">2.</font></td>
		<td colspan="2" valign="top">



<p style='text-align:justify;'><font size="2">Based on my knowledge,
this annual 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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td colspan="2" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top"><font size="2">3.</font></td>
		<td colspan="2" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td colspan="2" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top"><font size="2">4.</font></td>
		<td colspan="2" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td colspan="2" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">
		<p align="justify"><font size="2">a)</font></td>
		<td width="92%" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="92%" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">
		<p align="justify"><font size="2">b)</font></td>
		<td width="92%" valign="top">



<p style='text-align:justify;'><font size="2">[Omitted pursuant to SEC
Release 34-47986];</font></p>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="92%" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">
		<p align="justify"><font size="2">c)</font></td>
		<td width="92%" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="92%" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">
		<p align="justify"><font size="2">d)</font></td>
		<td width="92%" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="92%" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top"><font size="2">5.</font></td>
		<td colspan="2" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td colspan="2" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">
		<p align="justify"><font size="2">a)</font></td>
		<td width="92%" valign="top">



<p style='text-align:justify;'><font size="2">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>



		</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="92%" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="3%" valign="top">&nbsp;</td>
		<td width="3%" valign="top">
		<p align="justify"><font size="2">b)</font></td>
		<td width="92%" valign="top">



<p style='text-align:justify;'><font size="2">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>





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





<p><font size="2">Date: September 27,
2006&nbsp;&nbsp;</font></p>

<p style="margin-left: 4in"><font size="2"><u>/s/
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; JEFFREY J. RITCHEY<br>
</u>Jeffrey
J. Ritchey<br>
Chief
Financial Officer</font></p>












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<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>7
<FILENAME>ex32.htm
<TEXT>
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<head>
<title>EXHIBIT 32</title>
</head>

<body>

&nbsp;<p><b>EXHIBIT 32</b></p>





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

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



<p style='margin-top:0pt;text-align:justify'>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, 2006 (the &quot;Report&quot;), the undersigned hereby certify in
their capacities as Chief Executive Officer and Chief Financial Officer of the
Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:</p>

<p style='text-align:justify; text-indent:36pt'>1.&nbsp;&nbsp; The Report fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and</p>

<p style='text-align:justify; text-indent:36pt'>2.&nbsp;&nbsp; The information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.</p>



<table border="0" width="100%" id="table1">
	<tr>
		<td>Dated: September 27, 2006</td>
		<td width="917">By:<u>
		/s/&nbsp;&nbsp;&nbsp;
MARK P. MURPHY&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
		</td>
	</tr>
	<tr>
		<td>&nbsp;</td>
		<td width="917">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Mark
P. Murphy</td>
	</tr>
	<tr>
		<td>&nbsp;</td>
		<td width="917">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chief
Executive Officer and President</td>
	</tr>
	<tr>
		<td>&nbsp;</td>
		<td width="917">&nbsp;</td>
	</tr>
	<tr>
		<td>&nbsp;</td>
		<td width="917">&nbsp;</td>
	</tr>
	<tr>
		<td>Dated: September 27, 2006</td>
		<td width="917">By:<u>
/s/ &nbsp;&nbsp; JEFFREY J. RITCHEY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
		</td>
	</tr>
	<tr>
		<td>&nbsp;</td>
		<td width="917">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Jeffrey
J. Ritchey</td>
	</tr>
	<tr>
		<td>&nbsp;</td>
		<td width="917">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chief Financial Officer</td>
	</tr>
</table>



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



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