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<SEC-DOCUMENT>0001003297-07-000042.txt : 20070213
<SEC-HEADER>0001003297-07-000042.hdr.sgml : 20070213
<ACCEPTANCE-DATETIME>20070213161655
ACCESSION NUMBER:		0001003297-07-000042
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20061231
FILED AS OF DATE:		20070213
DATE AS OF CHANGE:		20070213

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:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-14942
		FILM NUMBER:		07610406

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

	MAIL ADDRESS:	
		STREET 1:		MICRO MOTORS INC.
		STREET 2:		151 EAST COLUMBINE
		CITY:			SANTA ANA
		STATE:			CA
		ZIP:			92707
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>prodex10q1.htm
<TEXT>
<html>

<head>


<title> PRO DEX INC. Form 10-QSB</title>



</head>

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



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



  <p align="center"><b>UNITED STATES <br>
	SECURITIES AND EXCHANGE COMMISSION</b></p>
  <p align=center style='text-align:center'>Washington, D.C. 20549</p>

  <p align=center style='text-align:center'><b><font size="5">FORM
  10-QSB</font></b></p>
  <p style='margin-left:.75in;text-indent:-.75in;text-autospace:
  none'><b>[X]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Quarterly Report Pursuant to Section
  13 or 15(d) of the Securities Exchange Act of 1934.</b></p>
  <p align=center style='text-align:center;text-autospace:none'><b>For
  the quarterly period ended December 31, 2006</b></p>
  <p align=center style='text-align:center'><b>OR</b></p>
  <p style='margin-left:.75in;text-indent:-.75in;text-autospace:
  none'><b>[&nbsp; ]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Transition Report Pursuant to Section
  13 or 15(d) of the Securities Exchange Act of 1934.&nbsp;&nbsp;
  For the transition period from&nbsp; <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>to&nbsp;
  <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; .</u></b></p>
  <div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=721
 style='width:100%;border-collapse:collapse'>
 <tr>
  <td colspan=2 valign=top style='padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b>Commission
  File Number&nbsp;&nbsp;&nbsp; 0-14942 </b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b>
	<font size="5">PRO-DEX, INC.&nbsp;&nbsp;&nbsp; </font> </b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b>
	<font size="2">(Exact
  name of small business issuer as specified in its
  charter)&nbsp;&nbsp;&nbsp;&nbsp; </font> </b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0in; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td valign=top style='padding:0in; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>Colorado </u></b></p>
  </td>
  <td valign=top style='padding:0in; '>
  <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:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b>(State
  or Other Jurisdiction of&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td valign=top style='padding:0in; '>
  <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:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b>Incorporation
  or Organization)&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td valign=top style='padding:0in; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0in; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td valign=top style='padding:0in; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b><u>151 E. Columbine Avenue, Santa Ana, California 92707&nbsp;&nbsp;&nbsp;
  </u></b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b>(Address
  of Principal Executive Offices)&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td valign=top style='padding:0in; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; </b></p>
  </td>
  <td valign=top style='padding:0in; '>
  <p style='text-autospace:none'><b>&nbsp;&nbsp; &nbsp; </b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b>Issuer's
  telephone number: <u>714-241-4411&nbsp;&nbsp;&nbsp; </u></b></p>
  </td>
 </tr>
</table>





</div>





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



<p style='text-autospace:none; margin-top:0; margin-bottom:0'>Indicate
the number by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).</p>

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



<p style='text-autospace:none'>Indicate
the number of shares outstanding of each of the Registrant's classes of Common
Stock outstanding as of the latest practicable date:&nbsp; 9,551,550 shares of
Common Stock, no par value, as of February 7, 2007. </p>



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



&nbsp;<p>&nbsp;</p>
<p align="center"><font size="2">-1-</font></p>
<hr color="#000080">
<p>



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


</p>


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

<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0
 style='margin-left:0pt;border-collapse:collapse' width="95%">
 <tr style='height:15.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'><b>PRO-DEX, INC.
  and SUBSIDIARIES</b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'><b>CONSOLIDATED
  BALANCE SHEETS</b></p>
  </td>
 </tr>
 <tr style='height:27.0pt'>
  <td nowrap valign=top style='padding:0in 5.4pt 0in 5.4pt;height:27.0pt' width="67%">

  </td>
  <td valign=top style='border:solid windowtext 1.0pt;border-right:none;
  padding:0in 5.4pt 0in 5.4pt;height:27.0pt' width="14%">
  <p align=center style='text-align:center'><i><font size="2">December 31, 2006
	<br>
	(unaudited)</font></i></p>
  </td>
  <td valign=top style='border:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:27.0pt' width="14%">
  <p align=center style='text-align:center'><i><font size="2">June 30,2006
	<br>
	(audited)</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-bottom:
  none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt' width="67%">
  <p><b><font size="2">ASSETS</font></b></p>
  </td>
  <td nowrap valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' width="14%">

  </td>
  <td nowrap valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">Current assets:</font></p>
  </td>
  <td nowrap valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' width="14%">

  </td>
  <td nowrap valign=top style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  366,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  358,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Accounts receivable, net of allowance for doubtful </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  accounts of $117,000 at December 31 and $40,000 at June 30</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  3,341,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  3,841,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Inventories, 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  4,743,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  3,980,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Prepaid 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  182,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;91,000
  </font>
  </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Income tax 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  117,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  222,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Deferred 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,153,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  766,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total current
  assets </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;9,902,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  9,258,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">Property, plant, equipment
  and leasehold improvements, net&nbsp;&nbsp;&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  3,761,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  3,726,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Goodwill</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,997,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,931,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Intangibles - Patents,
  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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,370,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,417,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Deferred income 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  295,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  378,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Other </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;74,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  44,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total other assets
  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  4,736,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  4,770,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  18,399,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;border-left:medium none;border-bottom:
  2.25pt double windowtext;border-right:1.0pt solid windowtext;padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 17,754,000
  </font>
  </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><b><font size="2">LIABILITIES AND
  SHAREHOLDERS' EQUITY</font></b></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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">Current 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Credit Line</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,200,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  900,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accounts 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,351,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  952,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 949,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  971,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Current portion of
  term note</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  250,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  250,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Current portion of
  real estate loan</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  27,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  27,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Current portion of
  &quot;patent&quot; deferred payable</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  82,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  71,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total current
  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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  3,859,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  3,171,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">Long-term 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Term note</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  521,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  646,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Real estate loan</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,605,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,619,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Patent deferred
  payable</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  158,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  245,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;Total long-term
  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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,284,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,510,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">Total liabilities</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  6,143,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  5,681,000 </font> </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp; &nbsp;&nbsp;Common shares; no par
  value; 50,000,000 shares authorized;</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,551,550 shares
  issued and outstanding December 31, 2006,</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <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 nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  16,124,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 16,066,000
  </font>
  </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Accumulated deficit
	</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (3,868,000)</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (3,993,000)</font></p>
  </td>
 </tr>
 <tr style='height:9.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:9.75pt' width="67%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  12,256,000&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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  12,073,000 </font> </p>
  </td>
 </tr>
 <tr style='height:9.75pt'>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:9.75pt' width="67%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:double windowtext 2.25pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' width="67%">
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  18,399,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;border-left:medium none;border-bottom:
  2.25pt double windowtext;border-right:1.0pt solid windowtext;padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right" width="14%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 17,754,000
  </font>
  </p>
  </td>
 </tr>
 <tr style='height:3.75pt'>
  <td nowrap valign=top style='padding:0in 5.4pt 0in 5.4pt;height:3.75pt' width="67%">

  </td>
  <td nowrap valign=top style='padding:0in 5.4pt 0in 5.4pt;height:3.75pt' align="right" width="15%">

  </td>
  <td nowrap valign=top style='padding:0in 5.4pt 0in 5.4pt;height:3.75pt' align="right" width="15%">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>
  <p align=center style='text-align:center'><i><font size="2">See notes to consolidated financial statements.</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:12.75pt' width="67%">
  <p><i><font size="2">&nbsp;</font></i></p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right" width="15%">

  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right" width="15%">

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

</div>

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

<p align="center"><font size="2">&nbsp;-2-</font></p>

<hr color="#000080">
<p>



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


</p>


<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0
 style='border-collapse:collapse' width="95%">
 <tr style='height:15.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'><b>PRO-DEX, INC.
  and SUBSIDIARIES</b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'><b>CONSOLIDATED
  STATEMENTS OF OPERATIONS</b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'><b>Three months
  ended December 31 (unaudited)</b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

  </td>
  <td nowrap colspan=2 valign=top style='padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>
  <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:0in 5.4pt 0in 5.4pt;height:12.75pt'>

  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-right:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p align=center style='text-align:center'><i><font size="2">2006</font></i></p>
  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>
  <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:solid windowtext 1.0pt;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">Net sales </font> </p>
  </td>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,631,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,750,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">Cost of sales </font> </p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">3,262,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">2,022,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">Gross profit </font> </p>
  </td>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">1,369,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">1,728,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">Operating expenses: </font> </p>
  </td>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Selling </font> </p>
  </td>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">340,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">254,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; General and
  administrative expenses </font> </p>
  </td>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">746,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">534,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Research and
  development costs </font> </p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">579,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">444,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">Total operating expenses </font> </p>
  </td>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">1,665,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">1,232,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

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

  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">(Loss) income from
  operations </font> </p>
  </td>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">(296,000)</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">496,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">Other income (expense): </font> </p>
  </td>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Royalty income</font></p>
  </td>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">18,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">26,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Interest income
  (expense)</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">(58,000)</font></p>
  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">21,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">Total</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">(40,000)</font></p>
  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">47,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">(Loss) income before
  (benefit) provision for income taxes</font></p>
  </td>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">(336,000)</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">543,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

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

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

  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:13.5pt'>
  <p><font size="2">(Benefit) provision for
  income taxes</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:13.5pt' align="right">
  <p><font size="2">(198,000)</font></p>
  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:13.5pt' align="right">
  <p><font size="2">216,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">Net (loss) income</font></p>
  </td>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(138,000)</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 327,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <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:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">Net (loss) income per
  share:</font></p>
  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Basic</font></p>
  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (0.01)</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.03&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Diluted</font></p>
  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (0.01)</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.03&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>
  <p><font size="2">Weighted average shares
  outstanding - basic</font></p>
  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">9,550,521&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">9,495,673&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>
  <p><font size="2">Weighted average shares
  outstanding - diluted</font></p>
  </td>
  <td nowrap valign=top style='border:solid windowtext 1.0pt;border-top:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt' align="right">
  <p><font size="2">9,550,521&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt' align="right">
  <p><font size="2">10,053,076&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

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

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

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



















</div>











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

<p align=center style='text-align:center'><i>See notes to consolidated financial statements.</i></p>
<p align=center><font size="2">-3-</font></p>

<hr color="#000080">
<p>



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


</p>


<div align="center">
	<table class="MsoNormalTable" border="0" cellpadding="0" width="100%" style="width: 95%; border-collapse: collapse" id="table6">
		<tr style="height:15.75pt">
			<td width="100%" nowrap colspan="3" valign="bottom" style="width:100.0%;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt">
			<p class="MsoNormal" align="center" style="text-align:center"><b>
			PRO-DEX, INC. and SUBSIDIARIES</b></td>
		</tr>
		<tr style="height:15.75pt">
			<td width="100%" nowrap colspan="3" valign="bottom" style="width:100.0%;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt">
			<p class="MsoNormal" align="center" style="text-align:center"><b>
			CONSOLIDATED STATEMENTS OF OPERATIONS</b></td>
		</tr>
		<tr style="height:15.75pt">
			<td width="100%" nowrap colspan="3" valign="bottom" style="width:100.0%;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt">
			<p class="MsoNormal" align="center" style="text-align:center"><b>
			Six months ended December 31 (unaudited)</b></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt"></td>
			<td width="46%" nowrap colspan="2" valign="top" style="width:46.22%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt">
			<p class="MsoNormal" align="center" style="text-align:center"><i>
			<font size="2">&nbsp;</font></i></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt"></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal" align="center" style="text-align:center"><i>
			<font size="2">2006</font></i></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal" align="center" style="text-align:center"><i>
			<font size="2">2005</font></i></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Net sales </font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			9,864,000&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			7,514,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Cost of sales </font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">6,514,000&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">4,094,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Gross profit </font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">3,350,000&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">3,420,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Operating expenses: </font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Selling
			</font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">678,000&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">509,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; General
			and administrative expenses </font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">1,316,000&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">1,120,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
			Research and development costs </font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">1,226,000&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">886,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Total operating expenses </font>
			</td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">3,220,000&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">2,515,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Income from operations </font>
			</td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">130,000&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">905,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Other income (expense): </font>
			</td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Other
			expense, net </font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;-&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(7,000)</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Royalty
			income </font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">25,000&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">37,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
			Interest income (expense )</font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(112,000)</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">43,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Total</font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(87,000)</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">73,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Income before (benefit)
			provision for income taxes</font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">43,000&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">978,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right"></td>
		</tr>
		<tr style="height:13.5pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:13.5pt">
			<p class="MsoNormal"><font size="2">(Benefit) provision for income
			taxes</font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:13.5pt" align="right">
			<p class="MsoNormal"><font size="2">(60,000)</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:13.5pt" align="right">
			<p class="MsoNormal"><font size="2">389,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Net income</font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			103,000&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			589,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="top" style="width:53.78%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			</font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="bottom" style="width:53.78%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Net Income per share:</font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="bottom" style="width:53.78%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Basic</font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			0.01&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			0.06&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="bottom" style="width:53.78%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Diluted</font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			0.01&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.06&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="bottom" style="width:53.78%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			</td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="bottom" style="width:53.78%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Weighted average shares
			outstanding - basic</font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">9,545,757&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">9,474,227 </font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="bottom" style="width:53.78%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Weighted average shares
			outstanding - diluted</font></td>
			<td width="23%" nowrap valign="top" style="width:23.1%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">9,769,444&nbsp;</font></td>
			<td width="23%" nowrap valign="top" style="width:23.12%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">10,045,179 </font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="53%" nowrap valign="bottom" style="width:53.78%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt"></td>
			<td width="23%" nowrap valign="bottom" style="width:23.1%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt" align="right"></td>
			<td width="23%" nowrap valign="bottom" style="width:23.12%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt" align="right"></td>
		</tr>
	</table>
</div>
<p align=center style='text-align:center'>&nbsp;</p>





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



<p align=center style='text-align:center'><font size="2">&nbsp;-4-</font></p>

<hr color="#000080">
<p>



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


</p>


<div align="center">
	<table class="MsoNormalTable" border="0" cellpadding="0" width="100%" style="width: 95%; border-collapse: collapse">
		<tr style="height:12.75pt">
			<td width="100%" nowrap colspan="3" valign="bottom" style="width:100.0%;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal" align="center" style="text-align:center"><b>
			PRO-DEX, INC. and SUBSIDIARIES</b></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="100%" nowrap colspan="3" valign="bottom" style="width:100.0%;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal" align="center" style="text-align:center"><b>
			CONSOLIDATED STATEMENTS OF CASH FLOWS</b></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="100%" nowrap colspan="3" valign="bottom" style="width:100.0%;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal" align="center" style="text-align:center"><b>
			Six months ended December 31 (unaudited)</b></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt"></td>
			<td width="15%" nowrap valign="bottom" style="width:15.08%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt"></td>
			<td width="15%" nowrap valign="bottom" style="width:15.6%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt"></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal" align="center" style="text-align:center"><i>
			<font size="2">2006</font></i></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal" align="center" style="text-align:center"><i>
			<font size="2">2005</font></i></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Cash Flows from Operating
			Activities: </font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Net Income</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			103,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			589,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
			Adjustments to reconcile net income to net cash provided by
			operating activities:</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			Depreciation and amortization </font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">232,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">189,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			Loss on disposal</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;-&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;6,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			(Recovery) provision for doubtful accounts</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">77,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(60,000)</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			Reserve for obsolete inventory</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">200,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;99,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			Vested option expense</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">55,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;- </font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			(Decrease) increase in deferred taxes</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			(305,000)</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">45,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			Changes in:</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			Decrease in accounts receivable</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">422,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;939,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			(Increase) in inventories</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(963,000)</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(528,000)</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border:none;border-left:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Increase) in prepaid expenses</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(90,000)</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(158,000)</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			(Increase) in other assets</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;(30,000)</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(17,000)</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			Increase (decrease) in accounts payable and accrued expenses</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">376,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(244,000)</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			Increase in income taxes payable</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">127,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">92,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Net Cash provided by Operating
			Activities </font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">204,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">952,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Cash Flows From Investing
			Activities: </font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
			Proceeds from equipment sale</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;-&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">1,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
			Additions to Astromec acquisition cost</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(66,000)</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">- </font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
			Additions to Intangible assets - Patents related to Intraflow</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(2,000)</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			(1,223,000)</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
			Purchases of equipment and leasehold improvements</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(217,000)</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			(250,000)</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Net Cash used in Investing
			Activities </font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(285,000)</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			(1,472,000)</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Cash Flows from Financing
			Activities:</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Net
			borrowing on line of credit </font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;300,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">- </font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
			Principal (payments) on term note</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">(125,000)</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">- </font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
			Principal (payments) on mortgage</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;(13,000)</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">- </font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
			Principal (payment) on patent deferred payable</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;(76,000)</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">- </font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
			Proceeds from warrant and option exercise </font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;3,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">113,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Net Cash provided by Financing
			Activities</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">89,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">113,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="15%" nowrap valign="bottom" style="width:15.08%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
			<td width="15%" nowrap valign="bottom" style="width:15.6%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			</td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Net Increase (decrease) in Cash
			and Cash Equivalents </font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">8,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			(407,000)</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Cash and Cash Equivalents,
			beginning of period </font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">358,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">2,584,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt"></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><u style="visibility:hidden"><font size="2">&nbsp;&nbsp;</font></u></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><u style="visibility:hidden"><font size="2">&nbsp;&nbsp;</font></u></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Cash and Cash Equivalents, end
			of period </font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border-top:none;
  border-left:none;border-bottom:double windowtext 2.25pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			366,000&nbsp;</font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border-top:none;
  border-left:none;border-bottom:double windowtext 2.25pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			2,177,000&nbsp;</font></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt"></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt" align="right"></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt" align="right"></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="100%" nowrap colspan="3" valign="bottom" style="width:100.0%;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal" align="center" style="text-align:center"><i>
			<font size="2">Supplemental Information</font></i></td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Cash payments for interest</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			150,000 </font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			9,000 </font></td>
		</tr>
		<tr style="height:9.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:9.75pt"></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:9.75pt" align="right">
			</td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border:none;border-right:
  solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:9.75pt" align="right">
			</td>
		</tr>
		<tr style="height:12.75pt">
			<td width="69%" nowrap valign="top" style="width:69.32%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:12.75pt">
			<p class="MsoNormal"><font size="2">Cash payments for income taxes
			</font></td>
			<td width="15%" nowrap valign="top" style="width:15.08%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			137,000 </font></td>
			<td width="15%" nowrap valign="top" style="width:15.6%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:12.75pt" align="right">
			<p class="MsoNormal"><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
			660,000 </font></td>
		</tr>
	</table>
</div>

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

<p align=center style='text-align:center'><i>See notes to consolidated financial statements.</i></p>
<p align=center style='text-align:center'><font size="2">-5-</font></p>



<hr color="#000080">



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

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

<p style='text-autospace:none'><b>NOTE 1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; BASIS OF PRESENTATION</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The accompanying unaudited consolidated financial statements of Pro-Dex,
Inc. (&quot;we&quot;, &quot;us&quot;, &quot;our&quot;, &quot;Pro-Dex&quot; or the &quot;Company&quot;) have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in conjunction
with the audited financial statements presented in our Annual Report for the
fiscal year ended June 30, 2006.&nbsp; In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. The results of
operations for such interim periods are not necessarily indicative of the
results that may be expected for the full year. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended June 30, 2006. </p>

<p style='text-autospace:none'><b>NOTE 2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;INVENTORIES</b></p>



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



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0
 style='margin-left:5.4pt;border-collapse:collapse' width="75%">
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border-top:solid windowtext 1.0pt;border-left:
  solid windowtext 1.0pt;border-bottom:none;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>December 31, 2006</p>
  </td>
  <td nowrap valign=bottom style='border-top:solid windowtext 1.0pt;border-left:
  none;border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>June 30, 2006</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>(unaudited)</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Raw Materials</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,451,000&nbsp;</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,694,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Work in process</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,074,000&nbsp;</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 495,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Development costs under contract</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  213,000&nbsp;</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 341,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Finished goods</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,997,000&nbsp;</p>
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,242,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp; Total</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,735,000&nbsp;</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,772,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Reserve for slow moving items</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (992,000)</p>
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (792,000)</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp; Total inventories, net</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  4,743,000&nbsp;</p>
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,980,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

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

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

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







</div>







<p style='text-autospace:none'><b>NOTE 3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; GOODWILL</b></p>



<p style='text-align:justify;text-indent:.5in'>We account for
goodwill 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 in accordance with the provisions of SFAS No.
142.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>In accordance
with the requirements of SFAS No. 142, 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; Management
determined that there were no events or circumstances that have occurred that
would indicate an impairment of the goodwill during the six-month period ended
December 31, 2006</p>



<p style='text-autospace:none'><b>NOTE 4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; WARRANTY</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The warranty reserve is based on historical costs of warranty repairs and
expected future identifiable warranty expenses.&nbsp; We have had warranty expenses
in this fiscal year relating to products introduced in the prior fiscal year.&nbsp;
As of December 31, 2006 we carried a warranty reserve of $336,000 which was
comprised of $151,000 for future warranty expenses related to products that are
currently in the process of being repaired and $145,000 for future warranty
expenses related to products that are still in the field, and $40,000 for our
legacy dental and industrial products.&nbsp; Warranty expenses are reflected in the
financial statements in cost of sales (&quot;COS&quot;).&nbsp; The total warranty expense
reflected in the COS for the quarter ended December 31, 2006 was $311,000 and
for the six-months ended December 31, 2006 was $512,000.&nbsp; The warranty accrual
and expenses for the three and six-months ended December 31, 2006 and 2005 are
presented below:</p>
<p style='text-align:center;text-autospace:
none'><font size="2">-6-</font></p><hr color="#000080">



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

<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:75%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.4%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="52%" nowrap colspan=2 valign=bottom style='width:52.6%;border-top:
  solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;border-bottom:none;
  border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Three months Ended
  December 31,</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.4%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="27%" nowrap valign=bottom style='width:27.5%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.1%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.4%;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Beginning Balance</p>
  </td>
  <td width="27%" nowrap valign=bottom style='width:27.5%;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  321,000&nbsp;</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.1%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  42,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.4%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp; Actual expenditures</p>
  </td>
  <td width="27%" nowrap valign=bottom style='width:27.5%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (296,000)</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.1%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (160,000)</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.4%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp; Additional accrual</p>
  </td>
  <td width="27%" nowrap valign=bottom style='width:27.5%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  311,000&nbsp;</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.1%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  203,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.4%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Ending Balance</p>
  </td>
  <td width="27%" nowrap valign=bottom style='width:27.5%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  336,000&nbsp;</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.1%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  85,000&nbsp;</p>
  </td>
 </tr>
</table>











</div>



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











<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:75%;border-collapse:collapse' id="table3">
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.4%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="52%" nowrap colspan=2 valign=bottom style='width:52.6%;border-top:
  solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;border-bottom:none;
  border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Six months Ended
  December 31,</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.4%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="27%" nowrap valign=bottom style='width:27.5%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.1%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.4%;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  Beginning Balance</td>
  <td width="27%" nowrap valign=bottom style='width:27.5%;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  309,000&nbsp;</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.1%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  42,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.4%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  &nbsp;&nbsp;&nbsp; Actual expenditures</td>
  <td width="27%" nowrap valign=bottom style='width:27.5%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (485,000)</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.1%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (192,000)</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.4%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  &nbsp;&nbsp;&nbsp; Additional accrual</td>
  <td width="27%" nowrap valign=bottom style='width:27.5%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  512,000&nbsp;</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.1%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  235,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.4%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  Ending Balance</td>
  <td width="27%" nowrap valign=bottom style='width:27.5%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  336,000&nbsp;</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.1%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  85,000&nbsp;</p>
  </td>
 </tr>
</table>



</div>







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

<p style='text-autospace:none'><b>NOTE 5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NET
INCOME (LOSS) PER SHARE </b></p>

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







<div align="center">







<table class=MsoNormalTable border=0 cellpadding=0
 style='margin-left:0pt;border-collapse:collapse' width="90%">
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap colspan=2 valign=bottom style='border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid black 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Three Months Ended
  December 31,</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Net (loss) income</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (138,000)</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p align=right style='text-align:right'>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 327,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Basic net income per common share:</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp; Weighted average number of common shares outstanding</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p>9,550,521&nbsp;</p>
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>9,495,673&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Basic net (loss) income per common share </p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (0.01)</p>
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.03&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Diluted net (loss) income per share:</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp; Weighted average of common shares outstanding</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>9,550,521&nbsp;</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p>9,495,673&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities (options)</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>- </p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p>523,000&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities (warrants)</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p>- </p>
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>34,403&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Weighted average number of common and shares - </p>
  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Diluted&nbsp; </p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p>9,550,521&nbsp;</p>
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>10,053,076&nbsp;</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>Diluted net (loss) income per common share</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (0.01)</p>
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.03&nbsp;</p>
  </td>
 </tr>
</table>





</div>









<p style='text-autospace:none'>&nbsp;</p>
<p style='text-autospace:none' align="center"><font size="2">-7-</font></p><hr color="#000080">



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

<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0
 style='margin-left:0pt;border-collapse:collapse' id="table4" width="75%">
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap colspan=2 valign=bottom style='border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid black 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Six Months Ended
  December 31,</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  Net income</td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 103,000 </p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 589,000 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  Basic net income per common share:</td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  &nbsp;&nbsp; Weighted average number of common shares outstanding</td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  9,545,757
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  9,474,227
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  Basic net income per common share
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.01 </p>
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.06 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  Diluted net income per share:</td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  &nbsp;&nbsp; Weighted average of common shares outstanding</td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  9,545,757
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  9,474,227
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities (options)</td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  215,770
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  535,869
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities (warrants)</td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  7,917
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  35,083
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  Weighted average number of common and shares -
  </td>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  Diluted&nbsp;
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  9,769,444
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  10,045,179
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  Diluted net income per common share</td>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.01 </p>
  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.06 </p>
  </td>
 </tr>
</table>









</div>
<p style='text-autospace:none'>&nbsp;</p>
<p style='text-autospace:none'><b>NOTE 6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>CREDIT FACILITIES</b></p>



<p style='text-align:justify;text-indent:.5in'>In November
2006, 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 the prime rate of interest (8.25% at December 31, 2006); or LIBOR
plus 2.50% (7.875% (one month) to 7.875% (three months) at December 31, 2006),
at our discretion, based on outstanding borrowings with no minimum interest
charge.&nbsp; There is an annual unused credit line fee of 0.175% calculated and
paid quarterly based on the average available unused balance of the credit
line.&nbsp; All assets of the Company secure the outstanding borrowings.&nbsp; There was
a $1,200,000 outstanding balance under the terms of this credit facility as of
December 31, 2006.&nbsp; The total eligible additional borrowing capacity at
December 31, 2006 was $800,000.&nbsp; </p>



<p style='text-autospace:ideograph-numeric ideograph-other'>There
are certain financial and non-financial covenants that we must meet to be in
compliance with the terms of the Wells Fargo credit facility which includes the
term loan and the line of credit, as amended, and the Union Bank mortgage.&nbsp; At
December 31, 2006, management believes that the Company was in compliance with
all such covenants.<b>&nbsp;</b></p>

<p style='text-autospace:none'><b>NOTE 7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; INCOME TAXES</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Deferred income taxes are provided on a liability method whereby deferred
tax assets and liabilities are recognized for temporary differences.&nbsp; Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases.&nbsp; Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.&nbsp; We have tax credit carry forwards
totaling $124,000 for state tax purposes that do not expire and can be carried
forward indefinitely until fully utilized.&nbsp; </p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Significant
management judgment is required in determining our provision for income taxes
and the recoverability of our deferred tax asset.&nbsp; Such determination is based
on our estimates of future taxable income by jurisdiction in which we operate
and the period over which our deferred tax assets will be recoverable.&nbsp; In the
event that actual results differ from these estimates or we adjust these
estimates in future periods, we may need to establish a valuation allowance,
which could result in a tax provision up to the carrying value of our deferred
tax assets.</p>
<p style='text-align:center'><font size="2">-8-</font></p><hr color="#000080">



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

<p style='text-autospace:none'><b>NOTE 8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; STOCK OPTIONS</b></p>

<p style='margin-top:9.0pt;margin-right:0in;margin-bottom:0in;margin-left:0in;
margin-bottom:.0001pt;text-align:justify;text-indent:.5in'>On July 1, 2006, we adopted 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
requires the measurement and recognition of compensation expense for all
share-based payment awards issued to employees and directors based on their
estimated fair-value.&nbsp;&nbsp; In March 2006, the SEC issued Staff Accounting Bulletin
No.&nbsp;107 (&quot;SAB 107&quot;) relating to SFAS 123(R). The Company has applied the
provisions of SAB 107 in its adoption of SFAS 123(R).&nbsp; The Company adopted SFAS 123(R) using the
modified prospective application transition method, which requires the
application of the accounting standard as of July&nbsp;1, 2006. The Company's
Consolidated Financial Statements as of and for the three and six months ended
December 31, 2006 reflects the impact of SFAS 123(R). In accordance with this
transition method, the Company's Consolidated Financial Statements for prior
periods have not been restated to reflect, and do not include, the impact of
SFAS 123(R). Share-based compensation expense recognized under SFAS 123(R) for
the three and six months ended December 31, 2006 was $52,000 and $85,000,
respectively which was related to stock options and stock appreciation rights. </p>

<p style='margin-top:9.0pt;margin-right:0in;margin-bottom:0in;margin-left:0in;
margin-bottom:.0001pt;text-align:justify;text-indent:.5in'>SFAS 123(R) requires companies to
estimate the fair value of share-based payment awards on the grant-date using
an option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as expense over the requisite service
periods in the Company's Consolidated Statements of Income. Prior to the
adoption of SFAS 123(R), the Company accounted for share-based awards to
employees and directors using the intrinsic value method in accordance with APB
25 as allowed under Statement of Financial Accounting Standards No.&nbsp;123,
&quot;Accounting for Stock-Based Compensation&quot; (&quot;SFAS 123&quot;). Under the intrinsic
value method, no share-based compensation expense related to stock options had
been recognized in the Company's Consolidated Statements of Operations because
the exercise price of the Company's stock options granted to employees and
directors equaled the fair market value of the underlying stock at the
grantdate. </p>

<p style='margin-top:9.0pt;margin-right:0in;margin-bottom:0in;margin-left:0in;
margin-bottom:.0001pt;text-align:justify;text-indent:.5in'>Share-based compensation expense
recognized during the current period is based on the value of the portion of
share-based payment awards that is ultimately expected to vest.&nbsp; SFAS 123(R)
requires forfeitures to be estimated at the time of grant in order to estimate
the amount of share-based awards that will ultimately vest. The forfeiture rate
is based on historical rates.&nbsp; Share-based compensation expense recognized in
the Company's Consolidated Statements of Income for the three and six months
ended December 31, 2006 includes (i)&nbsp;compensation expense for share-based
payment awards granted prior to, but not yet vested as of July 1, 2006, based
on the grant-date fair value estimated in accordance with the pro forma
provisions of SFAS 123 and (ii)&nbsp;compensation expense for the share-based
payment awards granted subsequent to June 30, 2006, based on the grant-date
fair value estimated in accordance with the provisions of SFAS 123(R). As
share-based compensation expense recognized in the Consolidated Statement of
Income for the three and six month periods ended December 31, 2006 is based on
awards ultimately expected to vest, it has been reduced for estimated
forfeitures. In the Company's pro forma information required under SFAS 123 for
the periods prior to fiscal 2007, the Company accounted for forfeitures as they
occurred. </p>

<p style='margin-top:9.0pt;margin-right:0in;margin-bottom:0in;margin-left:0in;
margin-bottom:.0001pt;text-align:justify;text-indent:.5in'>On November&nbsp;10, 2005, the Financial
Accounting Standards Board (&quot;FASB&quot;) issued FASB Staff Position No. SFAS
123(R)-3, &quot;Transition Election Related to Accounting for Tax Effects of
Share-Based Payment Awards.&quot; The alternative transition method includes
simplified methods to establish the beginning balance of the additional paid-in
capital pool (&quot;APIC pool&quot;) related to the tax effects of employee share-based
compensation, and to determine the subsequent impact on the APIC pool and
Consolidated Statements of Cash Flows of the tax effects of employee
share-based compensation awards that are outstanding upon adoption of SFAS
123(R). The Company has elected to adopt the provisions of SFAS 123(R)-3. </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The Board of Directors and the shareholders of the Company have approved
and adopted two equity based compensation plans, pursuant to which options to
purchase an aggregate of 2,500,000 shares of common stock may be granted to
officers, directors, and employees of the Company.&nbsp; The 2004 Employee's Plan
(&quot;Employee's Plan&quot;) authorizes 2,000,000 options to purchase shares and the
2004 Director's Plan (&quot;Director's Plan&quot;) authorizes 500,000 options to purchase
shares.&nbsp; Option awards are generally made with an exercise price equal to the
market price of our stock at the date of the grant, and generally fully vest
after 6 months of continuous service for directors and incrementally vest over
5 years of continuous service for employees.&nbsp; Both plans have a 10-year term
and expire in 2014.&nbsp; The aggregate compensation cost that has been charged
against income for those plans was $52,000 for the quarter ended December 31,
2006.&nbsp; </p>
<p style='text-align:center;text-autospace:
none'><font size="2">-9-</font></p><hr color="#000080">



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



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;There are 647,045 shares available to grant under the Employee's Plan,
and 195,000 shares available to grant remaining under the Director's Plan - for
a total of 842,045 shares remaining under both option plans at December 31,
2006. &nbsp;Transactions involving the Company's stock options for the six months
ended December 31, 2006 are summarized as follows: </p>





<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0
 style='margin-left:4.4pt;border-collapse:collapse' width="90%">
 <tr style='height:29.25pt'>
  <td nowrap valign=bottom style='border-right:medium none; border-top:1px solid #000000; border-bottom:medium none; border-left:1.0pt solid windowtext; height:29.25pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><u>Options</u></p>
  </td>
  <td nowrap valign=bottom style='border-top:1px solid #000000; height:29.25pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><u>Shares</u></p>
  </td>
  <td valign=bottom style='border-top:1px solid #000000; height:29.25pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><u>Weighted-Average
  <br>
	Exercise Price</u></p>
  </td>
  <td valign=bottom style='border-top:1px solid #000000; height:29.25pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>Weighted-Average<u><br>
	Remaining
  <br>
	Contractural Term</u></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:1px solid #000000; border-bottom:medium none; border-right:1.0pt solid windowtext; height:29.25pt; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>Aggregate<u><br>
	Intrinsic <br>
	Value</u></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Outstanding at 6/30/2006</p>
  </td>
  <td valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp; 1,204,316 </p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.68 </p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp; Granted</p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 71,000 </p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.52 </p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp; Exercised</p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (25,000)</p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.77 </p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:.25in'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:.25in'>
  <p>&nbsp;&nbsp;&nbsp; Forfeited</p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:.25in'>
  <p><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (85,000)</u></p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:.25in'>
  <p><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.28 </u></p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:.25in'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:.25in'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Outstanding at 12/31/2006</p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp; 1,165,316 </p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.65 </p>
  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>4.76</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;$ 558,275 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:none;border-left:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:none;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>Exercisable at 12/31/2006</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 916,816 </p>
  </td>
  <td nowrap valign=bottom style='border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.47 </p>
  </td>
  <td nowrap valign=bottom style='border:none;border-bottom:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>4.13</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>&nbsp;$ 343,200 </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:12.75pt'>

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

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

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

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

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







</div>

<p style='text-indent:.5in;text-autospace:none'>A summary of
the status of our nonvested shares as of December 31, 2006 and changes during
the six-months ended December 31, 2006 is presented below: </p>







<div align="center">







<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:68%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="35%" nowrap valign=bottom style='width:35.4%;border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  height:20px; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width="17%" nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; width:17.8%;border-top:1.0pt solid windowtext;height:20px; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>&nbsp;</p>
  </td>
  <td width="23%" valign=bottom style='width:23.18%;border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  height:20px; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>Weighted-Average</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="35%" nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; width:35.4%;border-left:1.0pt solid windowtext;height:22px; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><u>Nonvested Shares</u></p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.8%;height:22px; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><u>Shares</u></p>
  </td>
  <td width="23%" valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; width:23.18%;border-right:
  1.0pt solid windowtext;height:22px; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><u>Grant-Date Fair
  Value</u></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="35%" nowrap valign=bottom style='width:35.4%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Nonvested at 6/30/2006</p>
  </td>
  <td width="17%" valign=bottom style='width:17.8%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 263,750 </p>
  </td>
  <td width="23%" nowrap valign=bottom style='width:23.18%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.44 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="35%" nowrap valign=bottom style='width:35.4%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp; Granted</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.8%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 71,000 </p>
  </td>
  <td width="23%" nowrap valign=bottom style='width:23.18%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.52 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="35%" nowrap valign=bottom style='width:35.4%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp; Vested</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.8%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (51,250)</p>
  </td>
  <td width="23%" nowrap valign=bottom style='width:23.18%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.02 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="35%" nowrap valign=bottom style='width:35.4%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp; Vested and Exercised</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.8%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (5,000)</p>
  </td>
  <td width="23%" nowrap valign=bottom style='width:23.18%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.63 </p>
  </td>
 </tr>
 <tr style='height:17.25pt'>
  <td width="35%" nowrap valign=bottom style='width:35.4%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:17.25pt'>
  <p>&nbsp;&nbsp;&nbsp; Forfeited</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.8%;padding:0in 5.4pt 0in 5.4pt;
  height:17.25pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (30,000)</p>
  </td>
  <td width="23%" nowrap valign=bottom style='width:23.18%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:17.25pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.41 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="35%" nowrap valign=bottom style='width:35.4%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Nonvested at 12/31/2006</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.8%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:none;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 248,500 </p>
  </td>
  <td width="23%" nowrap valign=bottom style='width:23.18%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.31 </p>
  </td>
 </tr>
 </table>











</div>











<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>During the quarter ended December 31, 2006, the Company granted options
to purchase 15,000 shares of its common stock under the Director's Plan
exercisable at an average per share price of $1.29 (fair value $0.72 per
option) and options to purchase 6,000 shares of its common stock under the
Employee's Plan exercisable at an average per share price of $1.45 (fair value
$0.97 per option).&nbsp; </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>During the fiscal six months ended December 31, 2006, the Company granted
options to purchase 45,000 shares of its common stock under the Director's Plan
exercisable at an average per share price of $1.52 (fair value $0.88 per
option) and options to purchase 26,000 shares of its common stock under the
Employee's Plan exercisable at an average per share price of $1.53 (fair value
$1.03 per option). </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following assumptions: no dividend
rate for all years; price volatility of 54% to 63%, risk-free interest rate of
approximately 4.7% to 5.1%.&nbsp; The risk free rate is based on the applicable U.S.
Treasury yield curve in effect at the time of the grant.&nbsp; Expected volatility
is based on the changes in the historical monthly closing prices of the
shares.&nbsp; The assumed expected lives are between 5.25 to 7.5 years and based for
each grant on the simplified calculation method.</p>

<p style='text-autospace:none' align="center"><font size="2">&nbsp;-10-</font></p><hr color="#000080">



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

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>During the six months ended December 31, 2006, the Company granted
450,000 Stock Appreciation Rights (&quot;SAR&quot;) possessing an average benchmark per
share price of $1.53 (fair value $0.67 per SAR).&nbsp; The market value of each SAR
at December 31, 2006 is $0.61, based on the closing market price of the
underlying Common Stock price on that date. </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The fair market value of each SAR is estimated at the grant date using
the Black-Scholes option-pricing model with the following assumptions: no
dividend rate for all years; price volatility of 51% to 56%, risk-free interest
rate of approximately 4.7%; and expected life of 3 to 4 years.&nbsp; The
compensation cost that has been charged against income for the SAR was $17,000
for the quarter ended December 31, 2006 and was $33,000 for the six months
ended December 31, 2006.&nbsp;&nbsp;&nbsp; </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>As of December 31, 2006, there was $408,000 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements
granted under the Employee's and Director's Plans and the SARs.&nbsp; The cost is
expected to be recognized over a period of four years on a straight line
basis.&nbsp; None of the compensation cost is capitalized in the cost of the assets
of the Company. </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Share-based compensation expense reduced the Company's results of
operations as follows:</p>





<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0
 style='width:72%;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="58%" nowrap valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td width="19%" 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>Six months</p>
  </td>
  <td width="18%" 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>Three months</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="58%" nowrap valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>Ended December 31,
  2006</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="57%" nowrap valign=bottom style='border:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Share based compensation expense</p>
  </td>
  <td width="19%" 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'>$85,000&nbsp;&nbsp;&nbsp;</p>
  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'>$52,000&nbsp;&nbsp;&nbsp;</p>
  </td>
 </tr>
</table>





</div>





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



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The following table illustrates the effect on net income and earnings per
share for the three and the six months ended December 31, 2005, as if the
Company had applied the fair value recognition provisions of SFAS 123, as
amended by SFAS No.&nbsp;148, &quot;Accounting for Stock-Based
Compensation-Transition and Disclosure&quot; (&quot;SFAS 148&quot;):</p>





<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0
 style='margin-left:4.4pt;border-collapse:collapse' width="95%">
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-bottom:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Six Months</p>
  </td>
  <td nowrap valign=bottom style='border-top:solid windowtext 1.0pt;border-left:
  none;border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Three Months</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap colspan=2 valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:solid windowtext 1.0pt;border-right:solid black 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Ended December 31,
  2005</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-bottom:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Net income as reported:</p>
  </td>
  <td nowrap valign=bottom style='border-top:solid windowtext 1.0pt;border-left:
  none;border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  589,000 </p>
  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  327,000 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>(Deduct) total stock-based</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>employee and director</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>compensation expense&nbsp;&nbsp; </p>
  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>determined under fair value</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>based method for all awards,</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>net of related tax effects</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (64,000)</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (37,000)</p>
  </td>
 </tr>
 <tr style='height:.25in'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:.25in'>
  <p>Pro-forma net income:</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:.25in'>

  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:.25in'>
  <p align=right style='text-align:right'><u>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  525,000 </u></p>
  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:.25in'>
  <p align=right style='text-align:right'><u>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  290,000 </u></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-bottom:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Basic earnings per share</p>
  </td>
  <td nowrap valign=bottom style='border-top:solid windowtext 1.0pt;border-left:
  none;border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>As reported</p>
  </td>
  <td nowrap valign=bottom style='border-top:solid windowtext 1.0pt;border-left:
  none;border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.06 </p>
  </td>
  <td nowrap valign=bottom style='border-top:solid windowtext 1.0pt;border-left:
  none;border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.03 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>Pro-forma</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.06 </p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.03 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border-top:none;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>Diluted earnings per share:</p>
  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>As reported </p>
  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.06 </p>
  </td>
  <td nowrap valign=bottom style='border:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.03 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='border:solid windowtext 1.0pt;border-top:
  none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>Pro-forma</p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.05 </p>
  </td>
  <td nowrap valign=bottom style='border-top:none;border-left:none;border-bottom:
  solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.03 </p>
  </td>
 </tr>
</table>





</div>





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

<p style='text-autospace:none' align="center"><font size="2">&nbsp;-11-</font></p>

<hr color="#000080">



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

<p style='text-autospace:none'><b>NOTE 9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; MAJOR CUSTOMERS</b></p>

<p style='text-align:justify;text-indent:.5in;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 six months
ended December 31, 2006 and 2005.&nbsp; The major customers were the same in 2006
and 2005.&nbsp; Net sales to these customers in the six months ended December 31,
2006 amounted to $1,776,000 and $2,033,000, respectively, and at December 31,
2006 the accounts receivable included balances of $902,000 and $388,000
respectively, due from each of them.&nbsp; Net sales to these customers in the six
months ended December 31, 2005 amounted to $2,440,000 and $911,000,
respectively, and at December 31, 2005 the accounts receivable included balances
of $483,000 and $619,000 respectively, due from each of them.</p>



<p style='text-align:justify;text-indent:.5in'>On October 30,
2006, one of our major customers advised us that it plans to internally
manufacture two of the products that we developed for them and have
manufactured for the past four years.&nbsp; This decision is consistent with
this customer's general strategy of vertical integration and their targeted
time frame for the transition is January 1, 2008.&nbsp; At this point, the
customer has expressed its intention to purchase some of the major components
for these products from Pro-Dex, although they are under no obligation to do
so.&nbsp; Such major components could account for as much as 50% of the price
of the manufactured product. &nbsp;No existing purchase orders have been
cancelled for these two products as no backlog existed for them beyond January
1, 2008 and the customer has placed a blanket purchase order for delivery of
the product during the calendar year 2007.&nbsp; &nbsp; </p>



<p style='text-autospace:none'><b>NOTE 10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>COMMITMENTS AND CONTINGENCIES</b></p>

<p style='text-align:justify;text-indent:.5in;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 material actual, pending or threatened
litigation at this time.</p>
<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>
<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>
<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>
<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>
<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>
<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>
<p style='text-align:center;text-autospace:
none'><font size="2">-12-</font></p><hr color="#000080">



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

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

<p><b>COMPANY OVERVIEW</b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The following discussion and analysis provides information that the
Company's management believes is relevant to an assessment and understanding of
our results of operations and financial condition for each of the six and three
month periods ended December 31, 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; Our actual future results
could differ materially from those discussed herein.&nbsp; Our critical accounting
policies relate to inventory valuation for slow moving items, impairment of
goodwill, and recoverability of deferred income taxes.</p>



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



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>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:.5in;text-autospace:
none'>Pro-Dex's principal headquarters are located at 151 E. Columbine Avenue, Santa Ana,   California 92707 and our phone number is 714-241-4411.&nbsp; Our Internet address
is <u><font color="#0000FF">www.pro-dex.com</font></u>.&nbsp; Our annual reports
on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K,
amendments to those reports and other Securities and Exchange Commission
(&quot;SEC&quot;) filings, are available free of charge through our website as soon as
reasonably practicable after such reports are electronically filed with, or furnished
to, the SEC.&nbsp; In addition, our Code of Ethics and other corporate governance
documents may be found on our website at the Internet address set forth above.&nbsp;
Our filings with the SEC may also be read and
copied at the SEC's Public Reference Room at 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="#0000FF"> <u>www.sec.gov</u></font>. </p>



<p><b>&nbsp;</b></p>
<p align="center"><font size="2">-13-</font></p><hr color="#000080">



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

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



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The majority of our revenue is derived from designing, developing and
manufacturing electric, air, and battery powered rotary drive systems for the
medical device and dental industries, motion control software and hardware for
industrial and scientific applications and fractional horsepower DC motors for
the aerospace and medical industries. 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; Historically, a large part of the revenue growth of the Company has been
driven by developing and selling numerous private label rotary drive systems
for use in dental, cranial, spinal, arthroscopic and orthopedic surgery.&nbsp; Other
revenue sources include designing and manufacturing miniature pneumatic motors
in the, aerospace, and apparel industries.</p>



<p style='text-align:justify;text-indent:.5in;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:.5in;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 project costs not associated with contracts or purchase
orders are expensed as incurred.&nbsp; In the three months ended December 31, 2006,
$579,000 was expensed as research and development; an increase of $135,000 from
the $444,000 expensed in the three months ended December 31, 2005.&nbsp; </p>



<p>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 three months ended December 31, 2006, $86,000 was recognized as cost of
sales, compared to $16,000 recognized as cost of sales in the three months
ended December 31, 2005, as higher costs associated with completed and
cancelled contracts were realized .</p>



<p>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 our customers is generally protected by a non-disclosure
agreement.&nbsp; Customer-funded research and development resulted in a reduction in
revenue of $61,000 for the three months ended December 31, 2006, compared to
revenue generation of $29,000 for the three months ended December 31, 2005,
reflecting the net effect of an $84,000 refunded development fee in the quarter
ended December 31, 2006.&nbsp; </p>



<p style='text-autospace:ideograph-numeric ideograph-other'>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 (unaudited):</p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width="100%"
 style='width:100.0%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="29%" nowrap valign=bottom style='width:29.82%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="27%" nowrap colspan=4 valign=bottom style='width:27.42%;
  border-top:solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Three months Ended
  December 31,</p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.0%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="27%" nowrap colspan=4 valign=bottom style='width:27.24%;
  border-top:solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Six months Ended
  December 31,</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="29%" nowrap valign=bottom style='width:29.82%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Sales by customer
  type ($'000)</p>
  </td>
  <td width="14%" nowrap colspan=2 valign=bottom style='width:14.28%;
  border-top:none;border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="13%" nowrap colspan=2 valign=bottom style='width:13.16%;
  border-top:none;border-left:none;border-bottom:solid windowtext 1.0pt;
  border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.0%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="13%" nowrap colspan=2 valign=bottom style='width:13.62%;
  border-top:none;border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="13%" nowrap colspan=2 valign=bottom style='width:13.62%;
  border-top:none;border-left:none;border-bottom:solid windowtext 1.0pt;
  border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="29%" nowrap valign=bottom style='width:29.82%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Dental</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp; 1,109 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>24%</p>
  </td>
  <td width="7%" nowrap valign=bottom style='width:7.02%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp; 729 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>19%</p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.0%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
  <td width="7%" nowrap valign=bottom style='width:7.48%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=center style='text-align:center'>&nbsp;$ 2,187 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>22%</p>
  </td>
  <td width="7%" nowrap valign=bottom style='width:7.48%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=center style='text-align:center'>&nbsp;$ 1,815 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>24%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="29%" nowrap valign=bottom style='width:29.82%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Medical* </p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp; 1,681 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>36%</p>
  </td>
  <td width="7%" nowrap valign=bottom style='width:7.02%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp; 2,026 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>54%</p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.0%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
  <td width="7%" nowrap valign=bottom style='width:7.48%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp; 3,851 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>39%</p>
  </td>
  <td width="7%" nowrap valign=bottom style='width:7.48%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp; 3,678 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>49%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="29%" nowrap valign=bottom style='width:29.82%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Industrial</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 879 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>19%</p>
  </td>
  <td width="7%" nowrap valign=bottom style='width:7.02%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 761 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>20%</p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.0%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
  <td width="7%" nowrap valign=bottom style='width:7.48%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp; 1,761 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>18%</p>
  </td>
  <td width="7%" nowrap valign=bottom style='width:7.48%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp; 1,479 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>20%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="29%" nowrap valign=bottom style='width:29.82%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Aerospace*</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 557 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>12%</p>
  </td>
  <td width="7%" nowrap valign=bottom style='width:7.02%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp; </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;-- </p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.0%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
  <td width="7%" nowrap valign=bottom style='width:7.48%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;&nbsp;&nbsp; 1,147 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>12%</p>
  </td>
  <td width="7%" nowrap valign=bottom style='width:7.48%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp; </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;-- </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="29%" nowrap valign=bottom style='width:29.82%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Government research repairs and other</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 405 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>9%</p>
  </td>
  <td width="7%" nowrap valign=bottom style='width:7.02%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 235 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>6%</p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.0%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
  <td width="7%" nowrap valign=bottom style='width:7.48%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 919 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>9%</p>
  </td>
  <td width="7%" nowrap valign=bottom style='width:7.48%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 542 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>7%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="29%" nowrap valign=bottom style='width:29.82%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Total Sales</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp; 4,631 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>100%</p>
  </td>
  <td width="7%" nowrap valign=bottom style='width:7.02%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$3,751 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>100%</p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.0%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
  <td width="7%" nowrap valign=bottom style='width:7.48%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$ 9,865 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>100%</p>
  </td>
  <td width="7%" nowrap valign=bottom style='width:7.48%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$ 7,514 </p>
  </td>
  <td width="6%" nowrap valign=bottom style='width:6.14%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>100%</p>
  </td>
 </tr>
 </table>











<p style='text-align:justify;text-autospace:none'>&nbsp;</p>
<p style='text-align:center;text-autospace:none'><font size="2">-14-</font></p><hr color="#000080">



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

<p style='text-align:justify;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 $564,000 to aerospace
customers and $291,000 to medical customers in the quarter ended December 31,
2006 and were $1,147,000 to aerospace customers and $616,000 to medical
customers in the six months ended December 31, 2006. </p>





<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:90%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="23%" nowrap valign=bottom style='width:23.98%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="30%" nowrap colspan=2 valign=bottom style='width:30.44%;
  border-top:solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Three Months Ended
  December 31,</p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.3%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="30%" nowrap colspan=2 valign=bottom style='width:30.4%;border-top:
  solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;border-bottom:none;
  border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Six Months Ended
  December 31,</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="23%" nowrap valign=bottom style='width:23.98%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Sales by location
  ($'000)</p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.22%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.22%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.3%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='width:15.2%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.2%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="23%" nowrap valign=bottom style='width:23.98%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Santa Ana</p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.22%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,765 </p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.22%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,936 </p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.3%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='width:15.2%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  6,026 </p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.2%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  6,068 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="23%" nowrap valign=bottom style='width:23.98%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Beaverton</p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.22%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>1,005 </p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.22%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 814 </p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.3%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='width:15.2%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,061 </p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.2%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,446 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="23%" nowrap valign=bottom style='width:23.98%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Carson City</p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.22%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>861 </p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.22%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; - &nbsp;&nbsp;</p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.3%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='width:15.2%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,777 </p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.2%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="23%" nowrap valign=bottom style='width:23.98%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Total Sales</p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.22%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  4,631 </p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.22%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  3,750 </p>
  </td>
  <td width="3%" nowrap valign=bottom style='width:3.3%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="15%" nowrap valign=bottom style='width:15.2%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  9,864 </p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.2%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  7,514 </p>
  </td>
 </tr>
 </table>









</div>









<p style='text-align:justify;text-indent:.5in'>On October 30,
2006, one of our major customers advised us that it plans to internally
manufacture two of the products that we developed for them and have
manufactured for the past four years.&nbsp; This decision is consistent with
this customer's general strategy of vertical integration and their targeted
time frame for the transition is January 1, 2008.&nbsp; During the fiscal years
ended June 30, 2005 and 2006, the products being transitioned accounted for
sales of $1,352,000 and $1,238,000, respectively (constituting 9.7% and 7.2%,
respectively, of revenues during such periods).&nbsp; At this point, the
customer has expressed its intention to purchase some of the major components
for these products from Pro-Dex, although they are under no obligation to do
so.&nbsp; Such major components could account for as much as 50% of the price
of the manufactured product. No existing purchase orders have been cancelled
for these two products as no backlog existed for them beyond January 1, 2008
and the customer has placed a blanket purchase order for delivery of the
product during the calendar year 2007.&nbsp; </p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On November 9, 2006, we refunded the development fee on a separate
project to the same major customer due to our determination that we could not
achieve the performance required of the product being developed.&nbsp; In
addition to the refunded fee of $84,000, we wrote off $66,000 of capitalized
engineering costs and inventory associated with the project, and eliminated
$386,000 of orders for this product from our backlog.&nbsp; We continue to
manufacture the product that was to be replaced by the results of this
development project and currently have orders of $170,000 for this product
deliverable in period(s) ending June 30, 2007.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>It is our
intention to replace such lost business with orders from other customers as
well as orders for different product types, but there is no assurance that we
will be successful in our efforts to do so.&nbsp; Accordingly, the loss of
these manufacturing orders may, in the future, have a material adverse effect
upon our revenue and earnings until such time as we are able to replace the
lost business.</p>



<p style='text-align:justify;text-indent:.5in;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:.5in;text-autospace:
none'>We hold the following three independently verified certifications: ISO
9001:2000, ISO 13485 revised 1998, and Medical Device Directive 93\42\EEC Annex
II company.</p>
<p style='text-align:center;text-autospace:
none'><font size="2">-15-</font></p><hr color="#000080">



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

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>At the present time, we are generally able to fill orders within sixty
(60) days.&nbsp; At December 31, 2006, we had a backlog, including orders for
delivery beyond 60 days, of $11.7 million compared with a backlog of $7.0
million at December 31, 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
compared to December 31, 2005 is due to the addition of $2.7 million in
Astromec backlog, and $2.0 million of additional orders from current customers.&nbsp;
We do not typically experience seasonal fluctuations in our new order bookings,
but may experience variability in our new order bookings due to the timing of
major new product launches.&nbsp; Similarly, we do not typically experience seasonal
fluctuations in our shipments and revenues.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>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><b>CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS</b></p>



<p style='text-align:justify;text-indent:.5in'>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 non-warranty product returns for credit, so no reserve for 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'>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 and estimated
return and repair cost data.&nbsp;&nbsp; At December 31, 2006 we had $336,000 in accrued
warranty reserve, of which, $151,000 was for known repairs in products returned
and in house, and $185,000 was for future anticipated costs, compared to
$119,000 for known repairs and $202,000 for future anticipated costs in the
September 30, 2006 warranty reserve. </p>
<p style='text-align:justify'>&nbsp;</p>
<p style='text-align:center'><font size="2">-16-</font></p><hr color="#000080">



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

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



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:55%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="50%" nowrap valign=bottom style='width:50.48%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Warranty Accrual
  ($'000)</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.24%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>12/31/2006</p>
  </td>
  <td width="24%" nowrap valign=bottom style='width:24.28%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>6/30/2006</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="50%" nowrap valign=bottom style='width:50.48%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>In house</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.24%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 151 </p>
  </td>
  <td width="24%" nowrap valign=bottom style='width:24.28%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 139 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="50%" nowrap valign=bottom style='width:50.48%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>In field</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.24%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 185 </p>
  </td>
  <td width="24%" nowrap valign=bottom style='width:24.28%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 170 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="50%" nowrap valign=bottom style='width:50.48%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Total Accrual</p>
  </td>
  <td width="25%" nowrap valign=bottom style='width:25.24%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 336 </p>
  </td>
  <td width="24%" nowrap valign=bottom style='width:24.28%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 309 </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width="50%" nowrap valign=bottom style='width:50.48%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>

  </td>
  <td width="25%" nowrap valign=bottom style='width:25.24%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>

  </td>
  <td width="24%" nowrap valign=bottom style='width:24.28%;padding:0in 5.4pt 0in 5.4pt;
  height:12.75pt'>

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











</div>











<p style='text-indent:.5in'>We account 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 tested for impairment at least annually.&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 deferred tax
assets are future deductions from the amortization of intangibles over the next
ten years, deferred 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: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 style='margin-top:9.0pt;margin-right:0in;margin-bottom:0in;margin-left:0in;
margin-bottom:.0001pt;text-align:justify;text-indent:.5in'>We follow SFAS 123(R) that requires
companies to estimate the fair value of share-based payment awards on the
grant-date using an option-pricing model. The value of the portion of the award
that is ultimately expected to vest is recognized as expense over the requisite
service periods in the Company's Consolidated Statements of Operations. Prior
to the adoption of SFAS 123(R), the Company accounted for share-based awards to
employees and directors using the intrinsic value method in accordance with APB
25 as allowed under Statement of Financial Accounting Standards No.&nbsp;123,
&quot;Accounting for Stock-Based Compensation&quot; (&quot;SFAS 123&quot;). Under the intrinsic value
method, no share-based compensation expense related to stock options had been
recognized in the Company's Consolidated Statements of Operations because the
exercise price of the Company's stock options granted to employees and
directors equaled the fair market value of the underlying stock at the
grant-date. </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following assumptions: no dividend
rate for all years; price volatility of 54% to 63%, risk-free interest rate of
approximately 4.7% to 5.1%.&nbsp; The risk free rate is based on the applicable U.S.
Treasury yield curve in effect at the time of the grant.&nbsp; Expected volatility
is based on the changes in the historical monthly closing prices of the
shares.&nbsp; The assumed expected lives are between 5.25 to 7.5 years and based for
each grant on the simplified calculation method.</p>



<p style='text-indent:.5in'>The fair market value of each SAR
is estimated at the grant date using the Black-Scholes option-pricing model
with the following assumptions: no dividend rate for all years; price
volatility of 51% to 56%, risk-free interest rate of approximately 4.7%; and
expected life of 3 to 4 years.&nbsp; </p>
<p align="center"><font size="2">-17-</font></p><hr color="#000080">



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

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

<p style='text-autospace:none'><b>For the Three-Month periods
ended December 31, 2006 and 2005</b></p>

<p><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b>The following table sets forth for the
periods indicated the percentage of net revenues represented by each item in
our Consolidated Statements of Operations. </p>





<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width="100%"
 style='width:100.0%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>(In Thousands)</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>Three Months Ended
  December 31, </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

  </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>2006</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'>2005</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Net sales:</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp; 4,631&nbsp;</p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>100%</p>
  </td>
  <td nowrap valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp; 3,750 </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>100%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Cost of sales</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,262&nbsp;</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>70%</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,022 </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>54%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Gross Profit</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,369&nbsp;</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>30%</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,728 </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>46%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Selling, general and administrative expenses</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,086&nbsp;</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>23%</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 788 </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>21%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Research and development costs</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;579&nbsp;</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>13%</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 444 </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>12%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>(Loss) income from Operations</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (296)</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>-6%</p>
  </td>
  <td nowrap valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 496 </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>13%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Net interest and other (expense) income</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (40)</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>-1%</p>
  </td>
  <td nowrap valign=bottom style='padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 47 </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>1%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>(Benefit) provision for income taxes</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;(198)</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>-4%</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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 216 </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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>6%</p>
  </td>
 </tr>
 <tr style='height:16.5pt'>
  <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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in'>
  <p>Net (loss) income</p>
  </td>
  <td nowrap valign=bottom 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:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (138)</p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>-3%</p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:2.25pt double windowtext;
  border-right:1.0pt solid windowtext;padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 327 </p>
  </td>
  <td nowrap valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:5.4pt; padding-right:5.4pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'>9%</p>
  </td>
 </tr>
 </table>









<p style='text-align:justify;text-indent:.5in'><b>Net Sales.</b>&nbsp;
Consolidated sales increased from $3,750,000 to $4,631,000 ($881,000 or 24%)
for the quarter ended December 31, 2006 compared to the quarter ended December
31, 2005.&nbsp; Virtually all of the increase was due to the addition of Pro-Dex
Astromec, which added $861,000 to the consolidated sales.&nbsp; Increases in dental
shipments of $380,000 and medical product related repair revenue of $170,000 in
addition to increases in industrial motion control shipments of $118,000 offset
a $636,000 decrease in medical shipments.&nbsp;&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>Although
selective price increases and decreases were implemented in response to market
conditions, the majority of the sales changes for each product line are due
primarily to changes in sales volume, not the effect of price changes. </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Gross Profit and Gross Profit Percentage of Sales</b>.&nbsp; Our
consolidated gross profit for the quarter ended December 31, 2006 decreased
$359,000 or 21% over the same quarter in the previous year due to the warranty
expenses and increased inventory reserve coupled with the decreased sales
levels of medical products that carry higher gross margins.&nbsp; Gross profit as a
percentage of sales decreased to 30% for the quarter ended December 31, 2006
compared to 46% for the quarter ended December 31, 2005.&nbsp; Approximately 7% of
the difference is due to lower margins associated with the less favorable sales
mix with the reduced medical product sales.&nbsp; Approximately 4% of the difference
is due to lower margins associated with the Astromec products that have margins
in the 20% to 30% range. The higher warranty costs caused a 3% reduction, and
the associated manufacturing inefficiencies incurred in our second quarter were
responsible for approximately 2% of the reduction.&nbsp; Gross profit and gross
profit as a percentage of sales were as follows: </p>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:80%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="40%" nowrap valign=bottom style='width:40.32%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="43%" nowrap colspan=2 valign=bottom style='width:43.58%;
  border-top:solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Three Months Ended
  December 31,</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.1%;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="40%" nowrap valign=bottom style='width:40.32%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="21%" nowrap valign=bottom style='width:21.78%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="21%" nowrap valign=bottom style='width:21.78%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.1%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>(Decrease)</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="40%" nowrap valign=bottom style='width:40.32%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Gross Profit</p>
  </td>
  <td width="21%" nowrap valign=bottom style='width:21.78%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$1,369,000</p>
  </td>
  <td width="21%" nowrap valign=bottom style='width:21.78%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$1,728,000</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.1%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>-21%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="40%" nowrap valign=bottom style='width:40.32%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Gross Profit Percentage of Sales</p>
  </td>
  <td width="21%" nowrap valign=bottom style='width:21.78%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>30%</p>
  </td>
  <td width="21%" nowrap valign=bottom style='width:21.78%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>46%</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.1%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>-36%</p>
  </td>
 </tr>
</table>







</div>







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

<p style='text-align:center;text-autospace:
none'><font size="2">&nbsp;-18-</font></p><hr color="#000080">



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

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Selling, General and Administrative Costs (S, G&amp;A)</b>.&nbsp; Consolidated
S, G &amp; A expenses increased to $1,087,000 for the quarter ended December
31, 2006 from $788,000 for the quarter ended December 31, 2005.&nbsp; The increase
in selling expense is mainly due to $77,000 in increased bad debt expense.&nbsp; The
remaining increase was comprised of higher trade show and advertising expense.&nbsp;
The addition of Pro-Dex Astromec added $96,000 to the total consolidated
general and administrative costs.&nbsp; The remainder of the increase was due to the
timing of audit fees related to the year end audit and a $52,000 increase in
expense as a result of the adoption of FAS 123 (R).&nbsp; As a percentage of sales,
S, G&amp;A expenses increased to 23% of sales from 21% of sales.&nbsp; S, G&amp;A
costs were as follows:</p>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:75%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="37%" nowrap valign=bottom style='width:37.86%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="46%" nowrap colspan=2 valign=bottom style='width:46.8%;border-top:
  solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;border-bottom:none;
  border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Three Months Ended
  December 31,</p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.32%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="37%" nowrap valign=bottom style='width:37.86%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="24%" nowrap valign=bottom style='width:24.28%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.52%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.32%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Increase</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="37%" nowrap valign=bottom style='width:37.86%;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Selling</p>
  </td>
  <td width="24%" nowrap valign=bottom style='width:24.28%;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  340,000 </p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.52%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 254,000 </p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.32%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>34%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="37%" nowrap valign=bottom style='width:37.86%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>General and administrative</p>
  </td>
  <td width="24%" nowrap valign=bottom style='width:24.28%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 747,000 </p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.52%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 534,000 </p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.32%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>40%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="37%" nowrap valign=bottom style='width:37.86%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Total S, G&amp;A</p>
  </td>
  <td width="24%" nowrap valign=bottom style='width:24.28%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,087,000 </p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.52%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 788,000 </p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.32%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>38%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="37%" nowrap valign=bottom style='width:37.86%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>S, G&amp;A Percentage of Sales</p>
  </td>
  <td width="24%" nowrap valign=bottom style='width:24.28%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>23%</p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.52%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>21%</p>
  </td>
  <td width="15%" nowrap valign=bottom style='width:15.32%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>12%</p>
  </td>
 </tr>
</table>











</div>

<p style='text-align:justify;text-indent:.5in'><b>Research and
Development (R&amp;D) Costs</b>. &nbsp;Company-funded research and development
expenses increased $135,000 to $579,000 for the quarter ended December 31, 2006
from $444,000 for the quarter ended December 31, 2005, an increase of 30%.&nbsp; The
addition of Pro-Dex Astromec added $85,000 to the total consolidated research
and development costs, the remainder was due to approximately $50,000 for
increased independent research and tooling costs to enhance the capabilities of
our product development group.&nbsp; Company-funded research and development costs
were as follows:</p>





<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:75%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="43%" nowrap valign=bottom style='width:43.82%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="42%" nowrap colspan=2 valign=bottom style='width:42.52%;
  border-top:solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Three Months Ended
  December 31,</p>
  </td>
  <td width="13%" nowrap valign=bottom style='width:13.66%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="43%" nowrap valign=bottom style='width:43.82%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="20%" nowrap valign=bottom style='width:20.44%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.08%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width="13%" nowrap valign=bottom style='width:13.66%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Increase</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="43%" nowrap valign=bottom style='width:43.82%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Research and Development costs</p>
  </td>
  <td width="20%" nowrap valign=bottom style='width:20.44%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 579,000 </p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.08%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 444,000 </p>
  </td>
  <td width="13%" nowrap valign=bottom style='width:13.66%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>30%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="43%" nowrap valign=bottom style='width:43.82%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>R &amp; D Percentage of Sales</p>
  </td>
  <td width="20%" nowrap valign=bottom style='width:20.44%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>13%</p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.08%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>12%</p>
  </td>
  <td width="13%" nowrap valign=bottom style='width:13.66%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>6%</p>
  </td>
 </tr>
</table>









</div>









<p style='text-align:justify;text-indent:.5in'><b>Operating
Profit (loss) and Operating Profit </b><b>Percentage of Sales</b>.&nbsp; Our
consolidated operating profit for the quarter ended December 31, 2006 decreased
to a loss of $296,000 compared to an operating profit of $496,000 for the same
quarter in the previous year.&nbsp; The decrease in operating profit was due to the
lower gross margin coupled with the higher level of S, G&amp;A and research and
development expenses.&nbsp; Consequently, operating profit as a percentage of sales
decreased to -6% for the quarter ended December 31, 2006 compared to 13% for
the quarter ended December 31, 2005.&nbsp; Operating profit and margin were as
follows: </p>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:75%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="39%" nowrap valign=bottom style='width:39.04%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="36%" nowrap colspan=2 valign=bottom style='width:36.56%;
  border-top:solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Three Months Ended
  December 31, </p>
  </td>
  <td width="13%" nowrap valign=bottom style='width:13.82%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="39%" nowrap valign=bottom style='width:39.04%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="19%" nowrap valign=bottom style='width:19.7%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.84%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width="13%" nowrap valign=bottom style='width:13.82%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>(Decrease)</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="39%" nowrap valign=bottom style='width:39.04%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Operating Profit (loss)</p>
  </td>
  <td width="19%" nowrap valign=bottom style='width:19.7%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>($296,000)</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.84%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$496,000</p>
  </td>
  <td width="13%" nowrap valign=bottom style='width:13.82%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>-160%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="39%" nowrap valign=bottom style='width:39.04%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Operating Profit Percentage of Sales</p>
  </td>
  <td width="19%" nowrap valign=bottom style='width:19.7%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>-6%</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.84%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>13%</p>
  </td>
  <td width="13%" nowrap valign=bottom style='width:13.82%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>-143%</p>
  </td>
 </tr>
</table>



</div>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Royalties and Other Income. </b>&nbsp;We recognized $18,000 in royalty
income in the three months ended December 31, 2006, compared to $26,000 in the
prior year's second fiscal quarter.</p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Net Interest Income/Expense. </b>&nbsp;Net interest expense for the quarter
ended December 31, 2006 was $58,000 compared to interest income of $21,000 in
the quarter ended December 31, 2005, due to the reduction in cash and
assumption of debt related to the asset acquisitions completed in fiscal year
2006.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Income Tax (Benefit) Provision</b>. Our estimated effective combined
federal and state tax rate on income from operations for the quarter ended
December 31, 2006 was a benefit of 70% of earnings before tax compared to a 40%
of earnings before tax provision for the quarter ended December 31, 2005.&nbsp; The
difference in the 2006 rate is due to an operating loss combined with the use
of state tax credits coupled with a retroactive reinstatement of the federal
research and development credit for $64,000.&nbsp; The reinstatement was for expenses
incurred after December 31, 2005.</p>
<p style='text-align:center;text-autospace:
none'><font size="2">-19-</font></p><hr color="#000080">



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



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Net Income/loss.</b>&nbsp; Our net loss for the three months ended December
31, 2006 was $138,000 or $0.01 per share on a basic and diluted basis, as
compared to a net income of $315,000 or $0.03 per share on a basic and diluted
basis for the three months ended December 31, 2005.</p>

<p style='text-autospace:none'><b>For the Six-Month periods
ended December 31, 2006 and 2005</b></p>

<p><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b>The following table sets forth for the
periods indicated the percentage of net revenues represented by each item in
our Consolidated Statements of Operations. </p>





<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:80%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p>(In Thousands)</p>
  </td>
  <td width="49%" nowrap colspan=4 valign=bottom style='width:49.4%;border-top:
  solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;border-bottom:none;
  border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Six Months Ended
  December 31, </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="25%" nowrap colspan=2 valign=bottom style='width:25.44%;
  border-top:none;border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="23%" nowrap colspan=2 valign=bottom style='width:23.96%;
  border-top:none;border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Net sales:</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.46%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp; 9,864&nbsp;</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>100%</p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.96%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp; 7,514 </p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>100%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Cost of sales</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.46%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,514&nbsp;</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border:none;
  border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>66%</p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.96%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,094 </p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>54%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Gross Profit</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.46%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,350&nbsp;</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>34%</p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.96%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,420 </p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>46%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td width="16%" nowrap valign=bottom style='width:16.46%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td width="14%" nowrap valign=bottom style='width:14.96%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Selling, general and administrative expenses</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.46%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,994&nbsp;</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>20%</p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.96%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,629 </p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>22%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Research and development costs</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.46%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,226&nbsp;</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border:none;
  border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>12%</p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.96%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 886 </p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>12%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Income from Operations</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.46%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 130&nbsp;</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>1%</p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.96%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 905 </p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>12%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td width="16%" nowrap valign=bottom style='width:16.46%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td width="14%" nowrap valign=bottom style='width:14.96%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Net interest and other (expense) income </p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.46%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (87)</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>-1%</p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.96%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 73 </p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>1%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td width="16%" nowrap valign=bottom style='width:16.46%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
  <td width="14%" nowrap valign=bottom style='width:14.96%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt' align="right">

  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>(Benefit) provision for income taxes</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.46%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (60)</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>-1%</p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.96%;border:none;
  border-bottom:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 389 </p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt' align="right">
  <p align=right style='text-align:right'>5%</p>
  </td>
 </tr>
 <tr style='height:16.5pt'>
  <td width="47%" nowrap valign=bottom style='width:47.5%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:16.5pt'>
  <p>Net Income</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.46%;border:solid windowtext 1.0pt;
  border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;
  height:16.5pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 103&nbsp;</p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border:none;
  border-bottom:double windowtext 2.25pt;padding:0in 5.4pt 0in 5.4pt;
  height:16.5pt' align="right">
  <p align=right style='text-align:right'>1%</p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.96%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:double windowtext 2.25pt;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:16.5pt' align="right">
  <p>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 589 </p>
  </td>
  <td width="8%" nowrap valign=bottom style='width:8.98%;border-top:none;
  border-left:none;border-bottom:double windowtext 2.25pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:16.5pt' align="right">
  <p align=right style='text-align:right'>8%</p>
  </td>
 </tr>
 </table>





</div>

<p style='text-align:justify;text-indent:.5in'><b>Net Sales.</b>&nbsp;
Consolidated net sales increased to $9,864,000 from $7,514,000 ($2,350,000 or
31%) for the six months ended December 31, 2006, compared to the six months
ended December 31, 2005.&nbsp; A majority of the increase was due to the addition of
Pro-Dex Astromec, which added $1,777,000 to the consolidated net sales.&nbsp; Of the
non-Astromec related net sales changes, increases in dental shipments of
$372,000, government motion control products of $210,000 and medical product
related repair revenue of $190,000 offset a $442,000 decrease in medical
shipments.</p>



<p style='text-align:justify;text-indent:.5in'>Although
selective price increases and decreases were implemented in response to market
conditions, the majority of the sales changes for each product line are due
primarily to changes in sales volume, not the effect of price changes. </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Gross Profit and Gross Profit Percentage of Sales</b>.&nbsp; Our
consolidated gross profit for the six months ended December 31, 2006 decreased
$70,000 or 2% over the same period in the previous year due to the warranty
expenses and increased inventory reserve coupled with the decreased sales
levels of medical products that carry higher gross margins.&nbsp; Gross profit as a
percentage of sales decreased to 34% for the six months ended December 31, 2006
compared to 46% for the six months ended December 31, 2005.&nbsp; Approximately 4%
of the difference is due to lower margins associated with the less favorable
sales mix with the reduced medical product sales.&nbsp; Approximately 3% of the
difference is due to lower margins associated with the Astromec products that
have margins in the 20% to 30% range. The higher warranty costs caused a 3%
reduction, and the associated manufacturing inefficiencies incurred in the
period were responsible for approximately 3% of the reduction.&nbsp; Gross profit
and gross profit as a percentage of sales were as follows: </p>
<p style='text-align:center;text-autospace:
none'><font size="2">-20-</font></p><hr color="#000080">



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

<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:75%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="40%" nowrap valign=bottom style='width:40.32%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="43%" nowrap colspan=2 valign=bottom style='width:43.58%;
  border-top:solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Six Months Ended
  December 31,</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.1%;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="40%" nowrap valign=bottom style='width:40.32%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="21%" nowrap valign=bottom style='width:21.78%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="21%" nowrap valign=bottom style='width:21.78%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.1%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>(Decrease)</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="40%" nowrap valign=bottom style='width:40.32%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Gross Profit</p>
  </td>
  <td width="21%" nowrap valign=bottom style='width:21.78%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$3,350,000</p>
  </td>
  <td width="21%" nowrap valign=bottom style='width:21.78%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$3,420,000</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.1%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>-2%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="40%" nowrap valign=bottom style='width:40.32%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Gross Profit Percentage of Sales</p>
  </td>
  <td width="21%" nowrap valign=bottom style='width:21.78%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>34%</p>
  </td>
  <td width="21%" nowrap valign=bottom style='width:21.78%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>46%</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.1%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>-25%</p>
  </td>
 </tr>
</table>















</div>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Selling, General and Administrative Costs (S, G&amp;A)</b>.&nbsp; Consolidated
S, G &amp; A expenses increased to $1,994,000 for the six months ended December
31, 2006 from $1,629,000 for the six months ended December 31, 2005.&nbsp; The
majority of the increase is due to a $74,000 increase in bad debt expense, with
the remaining increases primarily in (i) consulting, (ii) trade shows and (iii)
advertising, related to the Intraflow product relaunch, by $53,000 and $16,000,
and $10,000 respectively.&nbsp; The addition of Pro-Dex Astromec added $184,000 to
the total consolidated general and administrative costs, the remainder of the
increase was due to the $85,000 charge as a result of the adoption of FAS 123
(R).&nbsp; These increases were offset by decreases in personnel and travel costs of
approximately $48,000.&nbsp; As a percentage of sales, S, G&amp;A expenses decreased
to 20% of sales from 22% of sales.&nbsp; S, G &amp; A costs were as follows:</p>





<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:75%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="37%" nowrap valign=bottom style='width:37.18%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="45%" nowrap colspan=2 valign=bottom style='width:45.94%;
  border-top:solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Six Months Ended
  December 31,</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.88%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Increase</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="37%" nowrap valign=bottom style='width:37.18%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="23%" nowrap valign=bottom style='width:23.84%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.88%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>(Decrease)</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="37%" nowrap valign=bottom style='width:37.18%;border-top:solid windowtext 1.0pt;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:none;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Selling</p>
  </td>
  <td width="23%" nowrap valign=bottom style='width:23.84%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  678,000 </p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.12%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 509,000 </p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.88%;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>33%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="37%" nowrap valign=bottom style='width:37.18%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>General and administrative</p>
  </td>
  <td width="23%" nowrap valign=bottom style='width:23.84%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align="right">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,316,000 </p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.12%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align="right">&nbsp;$&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;1,120,000 </p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.88%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>18%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="37%" nowrap valign=bottom style='width:37.18%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Total S, G&amp;A</p>
  </td>
  <td width="23%" nowrap valign=bottom style='width:23.84%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,994,000 </p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.12%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,629,000 </p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.88%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>22%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="37%" nowrap valign=bottom style='width:37.18%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>S, G&amp;A Percentage of Sales</p>
  </td>
  <td width="23%" nowrap valign=bottom style='width:23.84%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>20%</p>
  </td>
  <td width="22%" nowrap valign=bottom style='width:22.12%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>22%</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.88%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>-7%</p>
  </td>
 </tr>
</table>









</div>

<p style='text-align:justify;text-indent:.5in'><b>Research and
Development (R&amp;D) Costs</b>.&nbsp; Company-funded research and development
expenses increased $340,000 to $1,226,000 for the six months ended December 31,
2006 from $886,000 for the six months ended December 31, 2005, an increase of
38%.&nbsp; The addition of Pro-Dex Astromec added $164,000 to the total consolidated
research and development costs, the remainder was due to approximately $88,000
for increased independent research, $49,000 in higher personnel costs and
$20,000 in higher tooling costs to&nbsp; enhance the capabilities of our product
development group.&nbsp; Company-funded research and development costs were as
follows:</p>





<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:75%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="43%" nowrap valign=bottom style='width:43.28%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="42%" nowrap colspan=2 valign=bottom style='width:42.48%;
  border-top:solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Six Months Ended
  December 31,</p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.24%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="43%" nowrap valign=bottom style='width:43.28%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="21%" nowrap valign=bottom style='width:21.68%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="20%" nowrap valign=bottom style='width:20.8%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.24%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Increase</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="43%" nowrap valign=bottom style='width:43.28%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Research and Development costs</p>
  </td>
  <td width="21%" nowrap valign=bottom style='width:21.68%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 1,226,000 </p>
  </td>
  <td width="20%" nowrap valign=bottom style='width:20.8%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 886,000 </p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.24%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>38%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="43%" nowrap valign=bottom style='width:43.28%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>R &amp; D Percentage of Sales</p>
  </td>
  <td width="21%" nowrap valign=bottom style='width:21.68%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>12%</p>
  </td>
  <td width="20%" nowrap valign=bottom style='width:20.8%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>12%</p>
  </td>
  <td width="14%" nowrap valign=bottom style='width:14.24%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>5%</p>
  </td>
 </tr>
</table>









</div>









<p style='text-align:justify;text-indent:.5in'><b>Operating
Profit and Operating Profit </b><b>Percentage of Sales</b>.&nbsp; Our
consolidated operating profit for the six months ended December 31, 2006
decreased to $130,000 compared to $855,000 for the same period in the previous
year.&nbsp; The decrease in operating profit was due to the lower gross margin
coupled with the higher level of S,G&amp;A and research and development
expenses.&nbsp; Consequently, operating profit as a percentage of sales decreased to
1% for the six months ended December 31, 2006 compared to 12% for the six
months ended December 31, 2005.&nbsp; Operating profit and margin were as follows: </p>





<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:75%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="35%" nowrap valign=bottom style='width:35.6%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="32%" nowrap colspan=2 valign=bottom style='width:32.52%;
  border-top:solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Six Months Ended
  December 31, </p>
  </td>
  <td width="12%" nowrap valign=bottom style='width:12.6%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="35%" nowrap valign=bottom style='width:35.6%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="16%" nowrap valign=bottom style='width:16.26%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.26%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:solid windowtext 1.0pt;
  border-right:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width="12%" nowrap valign=bottom style='width:12.6%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>(Decrease)</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="35%" nowrap valign=bottom style='width:35.6%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Operating Profit</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.26%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$130,000</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.26%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$885,000</p>
  </td>
  <td width="12%" nowrap valign=bottom style='width:12.6%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>-85%</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="35%" nowrap valign=bottom style='width:35.6%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Operating Profit Percentage of Sales</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.26%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>1%</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.26%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>12%</p>
  </td>
  <td width="12%" nowrap valign=bottom style='width:12.6%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>-89%</p>
  </td>
 </tr>
</table>



</div>



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

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

<p style='text-align:center;text-autospace:
none'><font size="2">&nbsp;-21-</font></p>

<hr color="#000080">



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

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Royalties and Other Income. </b>&nbsp;We received $25,000 in royalty
payments in the six months ended December 31, 2006, compared to $37,000 in
royalty payments in the six months ended December 31, 2005.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Net Interest Income/Expense. </b>&nbsp;Net interest expense for the six
months ending December 31, 2006 was $112,000 compared to interest income of
$43,000 in the six months ended December 31, 2005, due to the reduction in cash
and assumption of debt related to the asset acquisitions completed in fiscal
year 2006.</p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Income Tax (Benefit) Provision</b>. Our estimated effective combined
federal and state tax rate on income from operations for the six months ended
December 31, 2006 was a benefit of 40% of earnings before tax compared to a
provision rate of 40% of earnings before tax for the six months ended December
31, 2005.&nbsp; The difference in the 2006 rate is due to the use of state tax credits coupled with a retroactive reinstatement of
the federal research and development credit for $64,000.&nbsp; The reinstatement was
for expenses incurred after December 31, 2005.</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b>Net Income.</b>&nbsp; Our net income for the six months ended December 31,
2006 was $103,000 or $0.01 per share on a basic and diluted basis, as compared
to a net income of $577,000 or $0.06 per share on a basic and diluted basis for
the six months ended December 31, 2005.</p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>
<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>
<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>
<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>&nbsp;</p>
<p style='text-align:center;text-autospace:
none'><font size="2">-22-</font></p>

<hr color="#000080">



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

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

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>The following table presents selected financial information as of and for
the six months ended December 31, 2006 and the six months ended December 31,
2005 and as of the year ended June 30, 2006:</p>





<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0 width="100%"
 style='width:75%;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td width="48%" nowrap valign=bottom style='width:48.08%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="35%" nowrap colspan=2 valign=bottom style='width:35.68%;
  border-top:solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>As of December 31,</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.24%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="48%" nowrap valign=bottom style='width:48.08%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.24%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>June 30, 2006</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="48%" nowrap valign=bottom style='width:48.08%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Cash and cash equivalents</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$366,000 </p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$2,177,000 </p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.24%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$358,000 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="48%" nowrap valign=bottom style='width:48.08%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Working Capital&#185;</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$6,043,000 </p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$7,659,000 </p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.24%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$6,087,000 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="48%" nowrap valign=bottom style='width:48.08%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Credit Line outstanding balance</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$1,200,000 </p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$0 </p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.24%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$900,000 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="48%" nowrap valign=bottom style='width:48.08%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Tangible book value/common share&#178;</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$0.83 </p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$0.97 </p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.24%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$0.81 </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="48%" nowrap valign=bottom style='width:48.08%;border:solid windowtext 1.0pt;
  border-bottom:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Number of days of sales outstanding (DSO) in</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td width="16%" nowrap valign=bottom style='width:16.24%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="48%" nowrap valign=bottom style='width:48.08%;border:solid windowtext 1.0pt;
  border-top:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>accounts receivable at end of quarter&#179;</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>66</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>64</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.24%;border-top:none;
  border-left:none;border-bottom:solid windowtext 1.0pt;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>66</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="48%" nowrap valign=bottom style='width:48.08%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>

  </td>
  <td width="16%" nowrap valign=bottom style='width:16.24%;border:none;
  border-right:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="48%" nowrap valign=bottom style='width:48.08%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td width="35%" nowrap colspan=2 valign=bottom style='width:35.68%;
  border-top:solid windowtext 1.0pt;border-left:solid windowtext 1.0pt;
  border-bottom:none;border-right:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;
  height:15.75pt'>
  <p align=center style='text-align:center'>Six Months Ended
  December 31, </p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.24%;border-top:solid windowtext 1.0pt;
  border-left:none;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>Year Ended</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="48%" nowrap valign=bottom style='width:48.08%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>

  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2006</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border:none;
  border-left:solid windowtext 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>2005</p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.24%;border-top:none;
  border-left:solid windowtext 1.0pt;border-bottom:none;border-right:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=center style='text-align:center'>June 30, 2006</p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td width="48%" nowrap valign=bottom style='width:48.08%;border:solid windowtext 1.0pt;
  padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p>Net cash provided by operations</p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$205,000 </p>
  </td>
  <td width="17%" nowrap valign=bottom style='width:17.84%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$952,000 </p>
  </td>
  <td width="16%" nowrap valign=bottom style='width:16.24%;border:solid windowtext 1.0pt;
  border-left:none;padding:0in 5.4pt 0in 5.4pt;height:15.75pt'>
  <p align=right style='text-align:right'>$55,000 </p>
  </td>
 </tr>
</table>









</div>









<p style='margin-left:.5in;text-align:justify;text-autospace:
none'>&#185;Working Capital = Ending Current Assets balance less Ending
Current Liabilities balance.</p>



<p style='margin-left:.5in;text-align:justify;text-autospace:
none'>&#178; Tangible book value/common share<sup> </sup>= (Total
shareholders' equity - Net intangible asset (patents) - Goodwill) / (basic
outstanding shares).</p>

<p style='margin-left:.5in;text-align:justify;text-autospace:
none'>&#179; DSO = Ending Net Accounts Receivable balance / (Previous
Quarter Sales / 91).</p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'>Our working capital at December 31, 2006 decreased to $6.0 million compared
to $7.7 million at December 31, 2005 and decreased from $6.1 million at June
30, 2006.&nbsp;&nbsp; Cash flow used by operations was $488,000 in the quarter ended
December 31, 2006 compared to a provision of $594,000 for the quarter ended
December 31, 2005.&nbsp; Cash was primarily used to increase inventory.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>In November
2006, 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 the prime rate of interest (8.25% at December 31, 2006); or LIBOR
plus 2.50% (7.875% (one month) to 7.875% (three months) at December 31, 2006),
at our discretion, based on outstanding borrowings with no minimum interest
charge.&nbsp; There is an annual unused credit line fee of 0.175% calculated and
paid quarterly based on the average available unused balance of the credit
line.&nbsp; All assets of the Company secure the outstanding borrowings.&nbsp; There was
a $1,200,000 outstanding balance under the terms of this credit facility as of
December 31, 2006.&nbsp; The total eligible additional borrowing capacity at
December 31, 2006 was $800,000.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>In January 2006,
we amended the credit facility and entered into a 4-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 December 31, 2006); or LIBOR plus 2.50%
(7.875% (one month) to 7.875% (three months) at December 31, 2006), at our
discretion, based on outstanding borrowings.&nbsp; The principal payments on
the note are $21,000 per month.&nbsp; All assets of the Company secure the
outstanding borrowings.&nbsp; There was $771,000 outstanding balance under the term
note as of December 31, 2006.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>In March 2006,
we entered into a 10-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 $11,000
per month beginning May 1, 2006.&nbsp; The outstanding borrowings are secured by our
  Carson City land and building.&nbsp; There was $1,633,000 outstanding balance
under the terms of this mortgage as of December 31, 2006.&nbsp;</p>
<p style='text-align:center;'><font size="2">-23-</font></p><hr color="#000080">



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



<p style='text-autospace:ideograph-numeric ideograph-other; text-indent:0.5in'>There
are certain financial and non-financial covenants that we must meet to be in
compliance with the terms of the Wells Fargo credit facility, as amended, and
the Union Bank mortgage.&nbsp; At December 31, 2006, management believes that the
Company was in compliance with all such covenants.</p>



<p style='text-align:justify;text-indent:.5in'>At December 31,
2006, we had cash and cash equivalents of $366,000.&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.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>In September
2002, our Board of Directors authorized the repurchase on the open market of up
to 500,000 shares of our outstanding Common Stock at a share price no greater
than $1.25, subject to compliance with applicable laws and regulations. &nbsp;There
is no requirement that we repurchase all or any portion of such shares.&nbsp; The
maximum total value of the repurchase is not to exceed $500,000.&nbsp; This
repurchase is to be financed with cash generated by operations.&nbsp; From the
inception of the repurchase authorization through the fiscal year-end date of
June 30, 2003, we repurchased 75,700 shares of Common Stock for $43,741, at an
average price of $0.58 per share.&nbsp; Although the authority to continue the
repurchase shares continues, no additional shares were repurchased in fiscal
year 2004, 2005, and 2006 or to date during fiscal year 2007.</p>

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

<p style='text-align:justify;line-height:normal'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
addition to the Risk Factor set forth below, we refer you to the risk factors
and cautionary language contained in our reports filed with the Securities and
Exchange Commission from time to time, including, but not limited to, those
risks and uncertainties which may be listed in our Annual Report on Form 10-KSB
and our most recent Quarterly Reports on Form 10-QSB, each as filed with the
Securities and Exchange Commission.</p>

<p style='text-align:justify;line-height:normal'><b>The loss
of a major customer may cause a negative impact upon our revenue and earnings.</b></p>

<p style='text-align:justify;text-indent:.5in'>On October 30,
2006, one of our major customers advised us that it plans to internally
manufacture two of the products that we developed for them and have
manufactured of the past four years.&nbsp; This decision is consistent with
this customer's general strategy of vertical integration and their targeted
time frame for the transition is January 1, 2008.&nbsp; During the fiscal years
ended June 30, 2005 and 2006, the products being transitioned accounted for
sales of $1,352,000 and$1,238,000, respectively (constituting 9.7% and 7.2%,
respectively, of revenues during such periods).&nbsp; At this point, the
customer has expressed its intention to purchase some of the major components
for these products from Pro-Dex, although they are under no obligation to do
so.&nbsp; Such major components could account for as much as 50% of the price
of the manufactured product. No existing purchase orders have been cancelled
for these two products as no backlog existed for them beyond January 1, 2008
and the customer has placed a blanket purchase order for delivery of the
product during the calendar year 2007.&nbsp; </p>



<p style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On November 9, 2006, we refunded the development fee on a separate
project to the same major customer due to our determination that we could not
achieve the performance required of the product being developed.&nbsp; In
addition to the refunded fee of $84,000, we wrote off $66,000 worth of
capitalized engineering costs and inventory associated with the project, and
eliminated $386,000 worth of orders for this product from our backlog.&nbsp; We
continue to manufacture the product that was to be replaced by the results of
this development project and currently have orders of $170,000 of this product
deliverable over the next four months.&nbsp; </p>



<p style='text-align:justify;text-indent:.5in'>It is our intention to replace such lost business
with orders from other customers as well as orders for different product types,
but there is no assurance that we will be
successful in our efforts to do so.&nbsp; Accordingly, the loss of these manufacturing orders may, in the future, have a
material adverse effect upon our revenue and earnings until such time as we are
able to replace the lost business.</p>
<p style='text-align:justify;text-indent:.5in'>&nbsp;</p>
<p style='text-align:center;'><font size="2">-24-</font></p><hr color="#000080">



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



<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>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-align:justify;line-height:normal'><b>SIGNIFICANT ACCOUNTING POLICIES</b></p>

<p style='text-align:justify;text-indent:.5in;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 began to report the expense of
vested stock options in our report for the quarter ending September 30, 2006.</p>

<p style='text-align:justify;text-indent:.5in;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 ended 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:.5in;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:center;text-autospace:
none'><font size="2">&nbsp;-25-</font></p><hr color="#000080">



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

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

<p style='text-align:justify;text-indent:.5in;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 six months
ended December 31, 2006 and 2005.&nbsp; The major customers were the same in 2006
and 2005.&nbsp; Net sales to these customers in the six months ended December 31,
2006 amounted to $1,776,000 and $2,033,000, respectively, and at December 31,
2006 the accounts receivable included balances of $902,000 and $388,000
respectively, due from each of them.&nbsp; Net sales to these customers in the six
months ended December 31, 2005 amounted to $2,440,000 and $911,000,
respectively, and at December 31, 2005 the accounts receivable included
balances of $483,000 and $619,000 respectively, due from each of them.</p>



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

<p style='text-align:justify;text-indent:.5in'>&nbsp;The Chief Executive Officer and Chief Financial
Officer (the principal executive officer and principal financial officer,
respectively) conducted an evaluation of the design and operation of our
&quot;disclosure controls and procedures&quot; (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (&quot;Exchange Act&quot;)).&nbsp; Based
on that evaluation for the quarter ended December 31, 2006, the Chief Executive
Officer and Chief Financial Officer concluded that the disclosure controls and
procedures are effective to ensure that information required to be disclosed by
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:.5in'>During the
quarter ended December 31, 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.</p>

&nbsp;<p>&nbsp;</p>
<p>&nbsp;</p>
<p align="center"><font size="2">-26-</font></p>
<hr color="#000080">



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

<p>&nbsp;</p>

<p style='text-align:justify'><b>PART II</b></p>

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



<table border="0" style="border-collapse: collapse" width="100%" id="table5" cellpadding="0">
	<tr>
		<td nowrap width="6%" valign="top"><b><font size="2">Item 1. </font> </b></td>
		<td width="94%" colspan="3" valign="top"><b><font size="2">Legal Proceedings </font> </b>
		</td>
	</tr>
	<tr>
		<td nowrap width="6%" valign="top">&nbsp;</td>
		<td width="94%" colspan="3" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td colspan="4" valign="top">



<p style='text-align:justify;text-autospace:
none'><font size="2">The Company is a party to various legal
proceedings incidental to its business, none of which are considered by the
Company to be material at this time.</font></p>

		</td>
	</tr>
	<tr>
		<td nowrap width="6%" valign="top">&nbsp;</td>
		<td width="94%" colspan="3" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="6%" valign="top"><font size="2"><b>Item 2. </b></font></td>
		<td width="94%" colspan="3" valign="top"><font size="2"><b>Unregistered Sales of
		Equity Securities and Use of Proceeds. </b>&nbsp;</font></td>
	</tr>
	<tr>
		<td width="6%" valign="top">&nbsp;</td>
		<td width="8%" valign="top"><font size="2">None.</font></td>
		<td width="6%" valign="top">&nbsp;</td>
		<td width="80%" valign="top">

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

		</td>
	</tr>
	<tr>
		<td nowrap width="6%" valign="top">&nbsp;</td>
		<td width="94%" colspan="3" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="6%" valign="top"> <b><font size="2">Item 3.</font></b></td>
		<td width="94%" colspan="3" valign="top"><font size="2"><b>Defaults Upon Senior
		Securities. </b>&nbsp;</font></td>
	</tr>
	<tr>
		<td width="6%" valign="top">&nbsp;</td>
		<td width="8%" valign="top"><font size="2">None.</font></td>
		<td width="6%" valign="top">&nbsp;</td>
		<td width="80%" valign="top">

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

		</td>
	</tr>
	<tr>
		<td nowrap width="6%" valign="top">&nbsp;</td>
		<td width="94%" colspan="3" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="6%" valign="top"> <b><font size="2">Item 4.</font></b></td>
		<td width="94%" colspan="3" valign="top"><font size="2"><b>Submissions of Matters to
		a Vote of Securities Holders. </b></font></td>
	</tr>
	<tr>
		<td nowrap width="6%" valign="top">&nbsp;</td>
		<td width="94%" colspan="3" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td colspan="4" valign="top">

<p style='text-align:justify'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On
November 30, 2006, the Company held its 2006 Annual Shareholders Meeting. At
the Meeting the Company's shareholders (i) elected Mark Murphy as a Class III
director; (ii) approved the amendment and restatement of the Company's 2004
Stock Option Plan to increase the aggregate number of shares authorized for
issuance under the plan by 500,000 from 1,500,000 to 2,000,000 and add
restricted stock grants to the types of awards available for grant under the
plan, and (iii) ratified the appointment of Moss Adams, LLP as the Company's
independent auditors for the fiscal year ending June 30, 2007.</font></p>

		</td>
	</tr>
	<tr>
		<td nowrap width="6%" valign="top">&nbsp;</td>
		<td width="94%" colspan="3" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td colspan="4" valign="top">

<p style='text-align:justify;text-indent:0.25in'><font size="2">Mr. Murphy received the following votes: For
7,575,006; and Withhold 248,312.&nbsp; The proposal to approve the amendment and
restatement of the 2004 Stock Option plan received the following votes: For
1,988,943; Against 1,152,220; and Abstain 6,370.&nbsp; The proposal to ratify the
appointment of Moss Adams, LLP received the following votes: For 7,731,441;
Against 80,927; and Abstain/Broker Non-Votes 10,950.&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</font> </p>

		</td>
	</tr>
	<tr>
		<td nowrap width="6%" valign="top">&nbsp;</td>
		<td width="94%" colspan="3" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="6%" valign="top"> <b><font size="2">Item 5.</font></b></td>
		<td width="94%" colspan="3" valign="top"><font size="2"><b>Other Information. </b>&nbsp;</font></td>
	</tr>
	<tr>
		<td width="6%" valign="top">&nbsp;</td>
		<td width="8%" valign="top"><font size="2">None.</font></td>
		<td width="6%" valign="top">&nbsp;</td>
		<td width="80%" valign="top">

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

		</td>
	</tr>
	<tr>
		<td nowrap width="6%" valign="top">&nbsp;</td>
		<td width="94%" colspan="3" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="6%" valign="top"><b><font size="2">Item 6.</font></b></td>
		<td width="94%" colspan="3" valign="top"><b><font size="2">Exhibits. </font> </b>
		<font size="2">&nbsp;</font></td>
	</tr>
	<tr>
		<td nowrap width="6%" valign="top">&nbsp;</td>
		<td width="94%" colspan="3" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="6%" valign="top">&nbsp;</td>
		<td width="8%" valign="top"><u><font size="2">Exhibits</font></u><font size="2">:</font></td>
		<td width="6%" valign="top">&nbsp;</td>
		<td width="80%" valign="top">

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

		</td>
	</tr>
	<tr>
		<td width="6%" valign="top">&nbsp;</td>
		<td width="8%" valign="top">&nbsp;</td>
		<td width="6%" valign="top"><font size="2">31.1</font></td>
		<td width="80%" valign="top">

<p align="justify"><font size="2">Certifications of 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 nowrap width="6%" valign="top">&nbsp;</td>
		<td width="94%" colspan="3" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="6%" valign="top">&nbsp;</td>
		<td width="8%" valign="top">&nbsp;</td>
		<td width="6%" valign="top"><font size="2">31.2</font></td>
		<td width="80%" valign="top">



<p align="justify"><font size="2">Certifications of 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 nowrap width="6%" valign="top">&nbsp;</td>
		<td width="94%" colspan="3" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td width="6%" valign="top">&nbsp;</td>
		<td width="8%" valign="top">&nbsp;</td>
		<td width="6%" valign="top"><font size="2">32</font></td>
		<td width="80%" valign="top">

<p align="justify"><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><b><font size="2">SIGNATURES </font> </b></p>

<p style='text-indent:.5in'><font size="2">In
accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.</font></p>



<table class=MsoNormalTable border=0 cellspacing=0 cellpadding=0 width=684
 style='width:513.0pt;border-collapse:collapse'>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>
  <p><font size="2">Date:&nbsp; February 13,
  2007</font></p>

  <p><font size="2">PRO-DEX INC. </font> </p>
  </td>
  <td width=378 valign=top style='width:283.5pt;padding:0in 0in 0in 0in'>
  <p><font size="2">Date:&nbsp; February 13,
  2007</font></p>

  <p><font size="2">PRO-DEX INC. </font> </p>
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>
  <p><font size="2">By: / s / Mark Murphy </font> </p>
  </td>
  <td width=378 valign=top style='width:283.5pt;padding:0in 0in 0in 0in'>
  <p><font size="2">By: / s / Jeffrey J.
  Ritchey </font> </p>
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>

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

  </td>
  <td width=378 valign=top style='width:283.5pt;padding:0in 0in 0in 0in'>

  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>
  <p><font size="2">Mark Murphy </font> </p>
  </td>
  <td width=378 valign=top style='width:283.5pt;padding:0in 0in 0in 0in'>
  <p><font size="2">Jeffrey J. Ritchey </font> </p>
  </td>
 </tr>
 <tr>
  <td width=306 valign=top style='width:229.5pt;padding:0in 0in 0in 0in'>
  <p><font size="2">Chief Executive Officer</font></p>
  </td>
  <td width=378 valign=top style='width:283.5pt;padding:0in 0in 0in 0in'>
  <p><font size="2">Secretary and Chief
  Financial Officer<br>
	(Principal Financial and
  Accounting Officer)</font></p>
  </td>
 </tr>
</table>



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





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







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



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




</p>







</body>

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

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

<body>

<p>&nbsp;</p>




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

<p align=center style='text-align:center'><b><u><font size="2">CERTIFICATIONS</font></u></b></p>



<p><font size="2">I, Mark Murphy, certify that:</font></p>



<table border="0" style="border-collapse: collapse" width="100%" id="table1" cellpadding="3" cellspacing="2">
	<tr>
		<td valign="top">
		<p align="justify"><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-QSB of
Pro-Dex, Inc.;</font></p>



		</td>
	</tr>
	<tr>
		<td valign="top">
		<p align="justify"><font size="2">2.</font></td>
		<td colspan="2" valign="top">



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



		</td>
	</tr>
	<tr>
		<td valign="top">
		<p align="justify"><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 valign="top">
		<p align="justify"><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 are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) [language omitted pursuant to SEC release 34-47986] for the
registrant and have:</font></p>



		</td>
	</tr>
	<tr>
		<td valign="top">
		<p align="justify">&nbsp;</td>
		<td valign="top">
		<p align="justify"><font size="2">a)</font></td>
		<td 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 valign="top">
		<p align="justify">&nbsp;</td>
		<td valign="top">
		<p align="justify"><font size="2">b)</font></td>
		<td valign="top">



<p style='text-align:justify;'><font size="2">[Omitted pursuant to SEC
Release 34-47986];</font></p>



		</td>
	</tr>
	<tr>
		<td valign="top">
		<p align="justify">&nbsp;</td>
		<td valign="top">
		<p align="justify"><font size="2">c)</font></td>
		<td 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 valign="top">
		<p align="justify">&nbsp;</td>
		<td valign="top">
		<p align="justify"><font size="2">d)</font></td>
		<td 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; and</font></p>



		</td>
	</tr>
	<tr>
		<td valign="top">
		<p align="justify"><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 valign="top">
		<p align="justify">&nbsp;</td>
		<td valign="top">
		<p align="justify"><font size="2">a)</font></td>
		<td 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 valign="top">
		<p align="justify">&nbsp;</td>
		<td valign="top">
		<p align="justify"><font size="2">b)</font></td>
		<td 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>
	<tr>
		<td width="5%">
		<p align="justify">&nbsp;</td>
		<td width="4%">
		<p align="justify">&nbsp;</td>
		<td width="91%">





<p align="justify">&nbsp;</p>
		</td>
	</tr>
</table>
<p><font size="2">Date: February 13, 2007&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</font> <u><font size="2">/s/
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; MARK MURPHY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<br>
</font></u><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mark Murphy<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief
Executive Officer</font></p>&nbsp;


</body>

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

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

<body>


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

<p align=center style='text-align:center'><b><u><font size="2">CERTIFICATIONS</font></u></b></p>

<p><font size="2">I, Jeffrey J. Ritchey,
certify that: </font> </p>
<table border="0" style="border-collapse: collapse" width="100%" id="table1" cellpadding="3" cellspacing="2">
	<tr>
		<td valign="top">
		<p align="justify"><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-QSB of
Pro-Dex, Inc.;</font></p>



		</td>
	</tr>
	<tr>
		<td valign="top">
		<p align="justify"><font size="2">2.</font></td>
		<td colspan="2" valign="top">



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



		</td>
	</tr>
	<tr>
		<td valign="top">
		<p align="justify"><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 valign="top">
		<p align="justify"><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 are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) [language omitted pursuant to SEC release 34-47986] for the
registrant and have:</font></p>



		</td>
	</tr>
	<tr>
		<td valign="top">
		<p align="justify">&nbsp;</td>
		<td valign="top">
		<p align="justify"><font size="2">a)</font></td>
		<td 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 valign="top">
		<p align="justify">&nbsp;</td>
		<td valign="top">
		<p align="justify"><font size="2">b)</font></td>
		<td valign="top">



<p style='text-align:justify;'><font size="2">[Omitted pursuant to SEC
Release 34-47986];</font></p>



		</td>
	</tr>
	<tr>
		<td valign="top">
		<p align="justify">&nbsp;</td>
		<td valign="top">
		<p align="justify"><font size="2">c)</font></td>
		<td 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 valign="top">
		<p align="justify">&nbsp;</td>
		<td valign="top">
		<p align="justify"><font size="2">d)</font></td>
		<td 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; and</font></p>



		</td>
	</tr>
	<tr>
		<td valign="top">
		<p align="justify"><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 valign="top">
		<p align="justify">&nbsp;</td>
		<td valign="top">
		<p align="justify"><font size="2">a)</font></td>
		<td 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 valign="top">
		<p align="justify">&nbsp;</td>
		<td valign="top">
		<p align="justify"><font size="2">b)</font></td>
		<td 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>
	<tr>
		<td width="5%">
		<p align="justify">&nbsp;</td>
		<td width="4%">
		<p align="justify">&nbsp;</td>
		<td width="91%">





<p align="justify">&nbsp;</p>
		</td>
	</tr>
</table>
<p><font size="2">Date: February 13,
2007&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>/s/
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; JEFFREY J. RITCHEY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<br>
</u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jeffrey
J. Ritchey<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief
Financial Officer</font></p>&nbsp;




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<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>4
<FILENAME>ex32.htm
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<title>EXHIBIT 32</title>
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<body>

&nbsp;<p><b>EXHIBIT 32</b></p>





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

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



<p style='margin-top:0in;text-align:justify; text-indent:0.5in'><font size="2">In connection with the
quarterly report on Form 10-QSB of Pro-Dex Inc. (the &quot;Company&quot;) for the
quarterly period ended December 31, 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:</font></p>

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

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



<table border="0" style="border-collapse: collapse" width="100%" id="table1">
	<tr>
		<td valign="top"><font size="2">Dated: February 13, 2007</font></td>
		<td width="659" valign="top"><font size="2">By:<u>
/s/ &nbsp;&nbsp; MARK 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;&nbsp;&nbsp;&nbsp;&nbsp;
<br>
</u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Mark Murphy<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chief
Executive Officer and President</font></td>
	</tr>
	<tr>
		<td valign="top">&nbsp;</td>
		<td width="659" valign="top">&nbsp;</td>
	</tr>
	<tr>
		<td valign="top"><font size="2">Dated: February 13, 2007</font></td>
		<td width="659" valign="top"><font size="2">By:<u>
/s/ &nbsp;&nbsp; JEFFREY J. RITCHEY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<br>
</u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Jeffrey
J. Ritchey<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Chief Financial Officer</font></td>
	</tr>
</table>



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





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