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<SEC-DOCUMENT>0001003297-07-000129.txt : 20070515
<SEC-HEADER>0001003297-07-000129.hdr.sgml : 20070515
<ACCEPTANCE-DATETIME>20070515160722
ACCESSION NUMBER:		0001003297-07-000129
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20070331
FILED AS OF DATE:		20070515
DATE AS OF CHANGE:		20070515

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:		07853299

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

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

<head>
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<title>Pro-Dex, Inc. Form 10-QSB</title>


</head>

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











<p>&nbsp;</p>



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

  <p align="center"><b><font size="5">FORM
  10-QSB</font></b></p>
  <table border="0" style="border-collapse: collapse" width="100%" id="table1">
	<tr>
		<td valign="top"><b>[X]</b></td>
		<td width="938" valign="top">
  <p style='text-autospace:
  none'><b>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.</b></p>
  		</td>
	</tr>
	<tr>
		<td valign="top">&nbsp;</td>
		<td width="938" valign="top">&nbsp; </td>
	</tr>
	<tr>
		<td valign="top">&nbsp;</td>
		<td width="938" valign="top">
  <p align=center style='text-align:center;text-autospace:none'><b>For
  the quarterly period ended March 31, 2007</b></p>
  		</td>
	</tr>
	<tr>
		<td valign="top">&nbsp;</td>
		<td width="938" valign="top">&nbsp; </td>
	</tr>
	<tr>
		<td valign="top">&nbsp;</td>
		<td width="938" valign="top">
  <p align=center style='text-align:center'><b>OR</b></p>
  		</td>
	</tr>
	<tr>
		<td valign="top">&nbsp;</td>
		<td width="938" valign="top">&nbsp; </td>
	</tr>
	<tr>
		<td valign="top"><b>[&nbsp; ]</b></td>
		<td width="938" valign="top">
  <p style='text-autospace:
  none'><b>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>
  		</td>
	</tr>
</table>
  <p style='text-autospace:none'><b>&nbsp;</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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td 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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td colspan=2 valign=top style='padding:0in; '>
  <p align=center style='text-align:center;text-autospace:none'><b>(Exact
  name of small business issuer as specified in its
  charter)&nbsp;&nbsp;&nbsp;&nbsp; </b></p>
  </td>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td 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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td 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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td 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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td 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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td 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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td 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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td 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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p style='text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
 <tr>
  <td 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>
  <td width=1 valign=top style='width:1.0pt;padding:0in 0in 0in 0in'>
  <p align=center style='text-align:center;text-autospace:none'><b>&nbsp;</b></p>
  </td>
 </tr>
</table>





</div>





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



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

<p style='text-autospace:none; margin-top:0; margin-bottom:0'><font size="2">Yes
[&nbsp; ] No [X]</font></p>



<p style='text-autospace:none'><font size="2">Indicate
the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:&nbsp; 9,636,550 shares of Common Stock, no
par value, as of May 12, 2007. </font> </p>



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



  <p align=center style='text-align:center'><font size="2">-1-</font></p>

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

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

</div>



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






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

<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=631
 style='width:100%;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><b><font size="2">PRO-DEX, INC.
  and SUBSIDIARIES</font></b></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td nowrap colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><b><font size="2">CONSOLIDATED
  BALANCE SHEETS</font></b></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:27.0pt'>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-right:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i><font size="2">March 31, 2007 <br>
	(unaudited)</font></i></p>
  </td>
  <td valign=top style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i><font size="2">June 30,2006 <br>
	(audited)</font></i></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  319,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  358,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  accounts of $135,000 at March 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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">3,525,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  3,841,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">4,735,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  3,980,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  311,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;
  91,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  354,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  222,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  958,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  766,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  10,202,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;9,258,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

  &nbsp;

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Property, plant, equipment
  and leasehold improvements, net&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
	</font> </p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  3,732,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  3,726,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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; 2,931,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  1,345,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  1,417,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  183,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  378,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;&nbsp;
  37,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;44,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  4,562,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  4,770,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

  &nbsp;

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Total assets</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  18,496,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 17,754,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

  &nbsp;

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

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

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

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

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

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

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,200,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  900,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  1,178,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  952,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  928,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;971,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  250,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;&nbsp;
  28,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;
  27,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;
  71,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  3,666,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  3,171,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

  &nbsp;

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

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

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

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;458,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  646,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  1,598,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  1,619,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  245,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">2,214,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  2,510,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

  &nbsp;

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">5,880,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  5,681,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">16,268,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">16,066,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <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:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (3,652,000)</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <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>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total shareholders'
  equity</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">12,616,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">12,073,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

  &nbsp;

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:2.25pt double windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities and
  shareholders' equity</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:2.25pt double windowtext;
  border-right:1.0pt solid windowtext;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  18,496,000&nbsp;</font></p>
  </td>
  <td nowrap valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 17,754,000&nbsp;</font></p>
  </td>
  <td nowrap valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:3.75pt'>
  <td nowrap valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

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

</div>

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

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

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

</div>



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






<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0 width=560
 style='width:100%;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><b><font size="2">PRO-DEX, INC.
  and SUBSIDIARIES</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><b><font size="2">CONSOLIDATED
  STATEMENTS OF OPERATIONS</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><b><font size="2">Three months
  ended March 31 (unaudited)</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-right:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i><font size="2">2007</font></i></p>
  </td>
  <td valign=top style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i><font size="2">2006</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net sales </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,916,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,214,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Cost of sales </font> </p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">3,760,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">2,759,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Gross profit </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">2,156,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">1,455,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Selling </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">361,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  317,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; General and
  administrative</font></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  780,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  564,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Research and
  development</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  664,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  566,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Total operating expenses </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,805,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">1,447,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Income from operations </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  351,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;
  8,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Other (expense), net </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  (4,000)</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Royalty income</font></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;
  5,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;
  5,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Interest (expense)</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  (66,000)</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  (13,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Total</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  (65,000)</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  (8,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Income before provision for
  income taxes</font></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  286,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  -&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">(Benefit) provision for
  income taxes</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  70,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  (6,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net income</font></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;216,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  6,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Basic</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.02&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.00&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Diluted</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.02&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.00&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Weighted average shares
  outstanding - basic</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,556,272&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">9,523,212&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Weighted average shares
  outstanding - diluted</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,765,033&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">9,998,691&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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



</div>



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





<p align=center style='text-align:center'><font size="2">&nbsp;-3-</font></p>

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

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

</div>



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






<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=560
 style='width:100%;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><b><font size="2">PRO-DEX, INC.
  and SUBSIDIARIES</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><b><font size="2">CONSOLIDATED
  STATEMENTS OF OPERATIONS</font></b></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><b><font size="2">Nine months
  ended March 31 (unaudited)</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-right:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i><font size="2">2007</font></i></p>
  </td>
  <td valign=top style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i><font size="2">2006</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net sales </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 15,780,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 11,728,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Cost of sales </font> </p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">10,274,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  6,854,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Gross profit </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">5,506,000 &nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  4,874,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Selling </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,039,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  827,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; General and
  administrative</font></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,106,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,684,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Research and
  development</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,890,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  1,451,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Total operating expenses </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  5,035,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  3,962,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Income from operations </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  471,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  912,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Other (expense), net </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;
  7,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  (7,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Royalty income </font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  30,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;42,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Interest income
  (expense)</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (179,000)</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  31,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Total</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (142,000)</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  66,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Income before provision for
  income taxes</font></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  329,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  978,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Provision for income taxes</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  10,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;
  382,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net income</font></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 319,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 596,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Basic</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.03&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.06&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Diluted</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.03&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.06&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Weighted average shares
  outstanding - basic</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,549,211&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,490,317&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Weighted average shares
  outstanding - diluted</font></p>
  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,768,277&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10,020,766&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=288 nowrap valign=bottom style='width:215.65pt;padding:0in .85pt 0in .85pt;
  height:12.75pt'>
  <p><i>&nbsp;</i></p>
  </td>
  <td width=136 nowrap valign=bottom style='width:102.15pt;padding:0in .85pt 0in .85pt;
  height:12.75pt' align="right">

  </td>
  <td width=136 nowrap valign=bottom style='width:102.2pt;padding:0in .85pt 0in .85pt;
  height:12.75pt' align="right">

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



</div>



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

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

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

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

</div>



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






<div align="center">





<table class=MsoNormalTable border=0 cellpadding=0 width=624
 style='width:100%;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><b><font size="2">PRO-DEX, INC. and SUBSIDIARIES</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><b><font size="2">CONSOLIDATED STATEMENTS OF CASH FLOWS</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><b><font size="2">Nine months ended March (unaudited)</font></b></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=top style='border-left:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-right:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i><font size="2">2007</font></i></p>
  </td>
  <td valign=top style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i><font size="2">2006</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Cash Flows from Operating
  Activities: </font> </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net Income</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 319,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 596,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Adjustments to
  reconcile net income to net cash used in operating activities:</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Depreciation and
  amortization </font> </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 355,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 302,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loss on disposal</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Recovery of)
  Provision for doubtful accounts</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 95,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (60,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;Reserve for
  obsolete inventory</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 195,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 267,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stock based
  compensation</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 199,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;&nbsp; -&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred taxes</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (103,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Changes in:</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><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></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 220,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 683,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (Increase) in inventories</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (951,000)</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1,724,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (Increase) in prepaid expenses</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(220,000)</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (107,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Decrease
  (Increase) in other assets</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (19,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Increase
  (Decrease) in accounts payable and accrued expenses</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 182,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(79,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Increase
  (Decrease) in income taxes payable</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (110,000)</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 83,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net Cash (used in) provided
  by Operating Activities </font> </p>
  </td>
  <td valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 298,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (154,000)</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Acquisition of
  Astromec, net of assets acquired</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;&nbsp; -&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2,359,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Proceeds from
  equipment sale</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;&nbsp; -&nbsp;</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Purchase of equipment
  and leasehold improvements</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (286,000)</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (588,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Purchase of Intangible
  Assets - Patents related to Interflow</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (68,000)</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1,165,000)</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net Cash (used in)
  Investing Activities </font> </p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (354,000)</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (4,111,000)</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Principal payments on long-term shareholder borrowings </font> </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (96,000)</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;&nbsp; -&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Borrowing on Line of Credit</font></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 300,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,000,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Borrowing on Term Note</font></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;&nbsp; -&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,000,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Principal payment on Term Note</font></p>
  </td>
  <td valign=top style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (187,000)</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (42,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
  Proceeds from option and warrant exercise</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;&nbsp;&nbsp; -&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 132,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net Cash provided by
  Financing Activities</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 17,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,090,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net (decrease)&nbsp; in
  Cash and Cash Equivalents </font> </p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (39,000)</font></p>
  </td>
  <td valign=top style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2,175,000)</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Cash and Cash Equivalents,
  beginning of period </font> </p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 358,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,584,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Cash and Cash Equivalents,
  end of period </font> </p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 319,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 409,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i><font size="2">Supplemental Information</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Cash payments for interest</font></p>
  </td>
  <td valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 180,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 18,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td valign=top style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Cash payments for income
  taxes </font> </p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 137,000&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 385,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:4.5pt'>
  <td valign=top style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td colspan=3 valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><i><font size="2">Non-Cash Disclosure of Investing and Financing
  Activities</font></i></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Long term payable incurred
  in acquisition of intangible assets</font></p>
  </td>
  <td valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;</font></p>
  </td>
  <td valign=top style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 316,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Acquisition of building and
  land - Real Estate Loan</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,650,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=top style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Intravantage Deferred
  Payable</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;</font></p>
  </td>
  <td valign=top style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 317,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td width=427 nowrap valign=bottom style='width:320.15pt;padding:0in .85pt 0in .85pt;
  height:12.75pt'>

  </td>
  <td width=99 nowrap valign=bottom style='width:73.95pt;padding:0in .85pt 0in .85pt;
  height:12.75pt' align="right">

  </td>
  <td width=99 nowrap valign=bottom style='width:73.95pt;padding:0in .85pt 0in .85pt;
  height:12.75pt' align="right">

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



</div>



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



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

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

</div>



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






<p align=center style='text-align:center;text-autospace:none'><b><font size="2">PRO-DEX,
INC. AND SUBSIDIARIES <br>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS </font>
</b></p>

<p style='text-autospace:none'><b><font size="2">NOTE 1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; BASIS OF PRESENTATION</font></b></p>



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

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



<p style='text-align:justify;text-autospace:none; text-indent:0.5in'>
<font size="2">Inventories are stated at the lower of cost (the first-in, first-out method) or
market and consist of the following:</font></p>

<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=494
 style='width:75%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">March 31, 2007</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">(unaudited)</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">June 30, 2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Raw Materials</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,555,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,694,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Work in process</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  816,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 495,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Development costs under contract</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  163,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 341,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Finished goods</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,188,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,242,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Total</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  5,722,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,772,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Reserve for slow moving items</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (987,000)</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;(792,000)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Total inventories, net</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  4,735,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,980,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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





</div>





<p style='text-autospace:none'><b><font size="2">NOTE 3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; GOODWILL</font></b></p>



<p style='text-align:justify;text-indent:.5in'><font size="2">We account for
goodwill and other intangible assets in accordance with SFAS No. 142 &quot;Goodwill and Other Intangible
Assets.&quot;&nbsp; SFAS No. 142 requires that goodwill and other 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; </font> </p>



<p style='text-align:justify;text-indent:.5in'><font size="2">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 nine-month period ended
March 31, 2007.</font></p>



<p style='text-autospace:none'><b><font size="2">NOTE 4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; WARRANTY</font></b></p>
<p style='text-autospace:none; text-indent:0.5in' align="justify">
<font size="2">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; At March 31,
2007 we had $402,000 in accrued warranty reserve, of which, $124,000 was for
known repairs in products returned and in house, and $278,000 was for future
anticipated costs, compared to $147,000 for known repairs and $128,000 for
future anticipated costs in the March 31, 2006 warranty reserve.&nbsp; Warranty
expenses are reflected in the financial statements in cost of sales.&nbsp; The total
warranty expense reflected in the cost of sales includes the actual
expenditures plus the change in reserve amounts.&nbsp; For the quarter ended March
31, 2007 the warranty expense was $195,000 and for the nine-months ended March
31, 2007 was $715,000.&nbsp; The warranty reserve and expenses for the three and
nine-months ended March 31, 2007 and 2006 are presented below:</font></p>
<p style='text-autospace:none' align="center"><font size="2">-6-</font></p>



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

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

</div>



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










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

<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=536
 style='width:75%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Three months Ended
  March 31,</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Beginning Balance</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  336,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  85,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Actual expenditures</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (129,000)</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (170,000)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Additional accrual/Waranty Expense</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  195,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  360,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Ending Balance</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  402,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  275,000&nbsp;</font></p>
  </td>
 </tr>
</table>

</div>

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



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=536
 style='width:75%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Nine months Ended
  March 31,</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Beginning Balance</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  309,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;40,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Actual expenditures</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (622,000)</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (316,000)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Additional accrual/Waranty Expense</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  715,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  551,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Ending Balance</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  402,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  275,000&nbsp;</font></p>
  </td>
 </tr>
</table>





</div>





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

<p style='text-autospace:none'><b><font size="2">NOTE 5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; NET
INCOME PER SHARE </font> </b></p>

<p style='margin-top:6.0pt;text-align:justify; text-indent:0.5in'>
<font size="2">The
following table reconciles the weighted average shares outstanding for basic
and diluted net income per share for the periods indicated (unaudited).</font></p>
<p style='margin-top:6.0pt;text-align:justify'>&nbsp;</p>
<p style='margin-top:6.0pt;text-align:center'><font size="2">-7-</font></p>

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

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

</div>



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












<div align="center">












<table class=MsoNormalTable border=0 cellpadding=0 width=640
 style='width:100%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Three Months Ended
  March 31,</font></p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net income</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;216,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  6,000 </font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Basic net income per common share:</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp; Weighted average number of common shares outstanding</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,556,272
	</font> </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,523,212
	</font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Basic net income per common share </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.02 </font> </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;0.00
  </font>
  </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Diluted net income per share:</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp; Weighted average of common shares outstanding</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,556,272
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,523,212
	</font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities (options)</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 203,505
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 444,891
	</font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities (warrants)</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,256
	</font> </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 30,588
	</font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Weighted average number of common shares - </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Diluted&nbsp; </font> </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,765,033
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,998,691
	</font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Diluted net income per common share</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.02
  </font>
  </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.00 </font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

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

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

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:12.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Nine Months Ended
  March 31,</font></p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net income</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 319,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 596,000
	</font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Basic net income per common share:</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp; Weighted average number of common shares outstanding</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,549,211
	</font> </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,490,317
	</font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Basic net income per common share </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.03 </font> </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.06 </font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Diluted net income per share:</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp; Weighted average of common shares outstanding</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,549,211
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,490,317
	</font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities (options)</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 211,882
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 496,673
	</font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of potentially dilutive securities (warrants)</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,184
	</font> </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 33,776
	</font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Weighted average number of common shares - </font> </p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Diluted&nbsp; </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9,768,277
	</font> </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10,020,766
	</font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Diluted net income per common share</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.03 </font> </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.06 </font> </p>
  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:15.75pt'>

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

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

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:12.75pt'>

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

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

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

  </td>
  <td width=19 nowrap valign=bottom style='width:14.0pt;padding:0in .85pt 0in .85pt;
  height:12.75pt'>

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



</div>



<p style='text-autospace:none'><b><font size="2">NOTE 6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; CREDIT FACILITIES</font></b></p>



<p style='text-align:justify;text-indent:.5in'><font size="2">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 March 31, 2007); or LIBOR plus
2.50% (7.875% (one month) to 7.875% (three months) at March 31, 2007), 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
March 31, 2007.&nbsp; The total eligible additional borrowing capacity at March
31, 2007 was $800,000.&nbsp; </font> </p>



<p style='text-align:justify;text-indent:.5in'><font size="2">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 March 31, 2007); or LIBOR plus
2.50% (7.875% (one month) to 7.875% (three months) at March 31, 2007), 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 $708,000 outstanding balance under the term
note as of March 31, 2007.&nbsp;</font></p>
<p style='text-align:center;'><font size="2">-8-</font></p>

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

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

</div>



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












<p style='text-align:justify;text-indent:.5in'><font size="2">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 $11,379
per month beginning May 1, 2006.&nbsp; The outstanding borrowings are secured by our
Carson City land and building.&nbsp; There was $1,626,000 outstanding principal balance
under the terms of this mortgage as of March 31, 2007.&nbsp;</font></p>



<p style='text-align:justify;text-indent:.5in'><font size="2">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;
March 31, 2007, management believes that the Company was in compliance with all
such covenants.</font></p>



<p style='text-autospace:none'><b><font size="2">NOTE 7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;INCOME TAXES
</font> </b></p>










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



<p style='text-align:justify; text-indent:0.5in'><font size="2">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.</font></p>

<p style='text-autospace:none'><b><font size="2">NOTE 8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; STOCK OPTIONS</font></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'><font size="2">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)
on July 1, 2006 using the
modified prospective application transition method.&nbsp; The Company's
Consolidated Financial Statements as of and for the three and nine months ended
March 31, 2007 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 nine months ended March 31, 2007 was $114,000 and $199,000,
respectively which was related to stock options and restricted stock grants.
</font> </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'><font size="2">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
grant-date. </font> </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'>&nbsp;</p>
<p style='margin-top:9.0pt;margin-right:0in;margin-bottom:0in;margin-left:0in;
margin-bottom:.0001pt;text-align:center;'><font size="2">-9-</font></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'>&nbsp;</p>

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

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

</div>



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










<p style='margin-top:9.0pt;margin-right:0in;margin-bottom:0in;margin-left:0in;
margin-bottom:.0001pt;text-align:justify;text-indent:.5in'><font size="2">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 nine months
ended March 31, 2007 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 nine-month periods ended March 31, 2007 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. </font> </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'><font size="2">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. </font> </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">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
3 to 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 $114,000 for the quarter ended March 31,
2007.&nbsp; </font> </p>
<p style='text-align:center;text-autospace:
none'><font size="2">-10-</font></p>

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

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

</div>



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










<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">There are 427,045 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 622,045 shares remaining under both option plans at March 31, 2007.&nbsp;
Transactions involving the Company's stock options for the nine months March
31, 2007 are summarized as follows: </font> </p>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=624
 style='width:90%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:.25in'>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="center">

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

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

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="center" colspan="2">
  &nbsp;</td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="center">
  &nbsp;</td>
 </tr>
 <tr style='height:29.25pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="center">
  <p align=center style='text-align:center'><font size="2">Options</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="center">
  <p align=center style='text-align:center'><font size="2">Shares</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="center">
  <p align=center style='text-align:center'><font size="2">Weighted-Average
  <br>
	Exercise Price</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="center" colspan="2">
  <p align=center style='text-align:center'><font size="2">Weighted-Average<br>
	Remaining <br>
	Contractural
  Term</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="center">
  <p align=center style='text-align:center'><font size="2">Aggregate<br>
	Intrinsic <br>
	Value</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Outstanding at 6/30/2006</font></p>
  </td>
  <td valign=bottom style='border:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp; 1,204,316&nbsp;</font></p>
  </td>
  <td valign=bottom style='border:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.68&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='border:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" colspan="2">

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Granted</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 411,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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; 1.41&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" colspan="2">

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Exercised</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (110,000)</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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; 1.24&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" colspan="2">

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

  </td>
 </tr>
 <tr style='height:.25in'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Forfeited</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (205,000)</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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;2.62&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" colspan="2">

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Outstanding at 3/31/2007</font></p>
  </td>
  <td valign=bottom style='border:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp; 1,300,316&nbsp;</font></p>
  </td>
  <td valign=bottom style='border:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.49&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">6.53</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  &nbsp;</td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$ 445,040 </font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" colspan="2">

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Exercisable at 3/31/2007</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 935,566&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.42&nbsp;&nbsp;
	</font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">5.37</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  &nbsp;</td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$ 364,040 </font> </p>
  </td>
 </tr>
</table>

</div>

<p style='text-indent:.5in;text-autospace:none'><font size="2">A summary of
the status of our nonvested shares as of March 31, 2007 and changes during the
nine-months ended March 31, 2007 is presented below: </font> </p>

<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=492
 style='width:75%;margin-left:5.15pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-bottom:medium none; border-top:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="184">

  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="174">
  <p align=center style='text-align:center'><font size="2">Weighted-Average</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Nonvested Shares</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="184">
  <p align=center style='text-align:center'><font size="2">Shares</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;border-left:
  medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="174">
  <p align=center style='text-align:center'><font size="2">Grant-Date Fair
  Value</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Nonvested at 6/30/2006</font></p>
  </td>
  <td valign=bottom style='border:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="184">
  <p><font size="2">263,750&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="174">
  <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; 2.44&nbsp;&nbsp;
	</font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Granted</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="184">
  <p><font size="2">411,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="174">
  <p><font size="2">1.40&nbsp;&nbsp;
	</font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Vested</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="184">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (100,000)</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="174">
  <p><font size="2">1.96&nbsp;&nbsp;
	</font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Vested and Exercised</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="184">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (90,000)</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="174">
  <p><font size="2">1.34&nbsp;&nbsp;
	</font> </p>
  </td>
 </tr>
 <tr style='height:17.25pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">&nbsp;&nbsp;&nbsp; Forfeited</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="184">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (120,000)</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="174">
  <p><font size="2">2.74&nbsp;&nbsp;
	</font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Nonvested at 3/31/2007</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="184">
  <p><font size="2">364,750&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="174">
  <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; 1.58&nbsp;&nbsp;
	</font> </p>
  </td>
 </tr>
</table>





</div>





<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">During the quarter ended March 31, 2007, the Company granted no options
to purchase shares of its common stock under the Director's Plan and no options
to purchase shares of its common stock under the Employee's Plan.&nbsp; </font> </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">During the nine months ended March 31, 2007, 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). </font> </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">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 on the date 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.</font></p>
<p style='text-align:center;text-autospace:
none'><font size="2">-11-</font></p>

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

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

</div>



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










<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">During the nine months ended March 31, 2007, the Company granted 450,000
Stock Appreciation Rights (&quot;SAR's&quot;) possessing an average benchmark per share
price of $1.53 (fair value $0.67 per SAR).&nbsp; In February 2007, these SAR's were
exchanged for 340,000 shares of restricted stock.&nbsp; The value of each share of
restricted stock was $1.38, based on the closing market price of the underlying
Common Stock price on the grant date.&nbsp; The restricted stock vests in equal
annual installments over four years, with the first vesting of 25% of the
shares at the date of grant on February 21, 2007, 25% on each of the following
three anniversaries of the grant.&nbsp; The net compensation cost that was charged
against income for the restricted stock grant was $94,000 for the three and
nine months ended March 31, 2007.&nbsp; </font> </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">The fair market value of each SAR was 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 was charged against income for the SAR was $33,000 for
the six months ended December 31, 2006.&nbsp; This amount was reversed in the quarter
ending March 31, 2007. There was no remaining market value of each SAR at March
31, 2007.</font></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">As of March 31, 2007, there was $409,000 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements
granted under the Employee's and Director's Plans and the restricted stock
grants.&nbsp; The cost is expected to be recognized over the vesting periods
determined by the grants of no greater than four years on a straight-line basis
for the options and three additional years for the restricted stock grants.&nbsp;
None of the compensation cost is capitalized in the cost of the assets of the
Company. </font> </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">Share-based compensation expense reduced the Company's results of
operations as follows:</font></p>












<div align="center">












<table class=MsoNormalTable border=0 cellpadding=0 width=449
 style='width:75%;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Nine months</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Three months</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Ended March 31,
  2007</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Share based compensation expense</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$199,000&nbsp;&nbsp; </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$114,000&nbsp;&nbsp;</font></p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">The following table illustrates the effect on net income and earnings per
share for the three and the nine months ended March 31, 2006, 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;):</font></p>

<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=669
 style='width:100%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Nine Months</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Three Months</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

  </td>
  <td colspan=2 valign=bottom style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Ended March 31,
  2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net income as reported:</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  596,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  6,000&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">(Deduct) total stock-based</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">employee and director</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">determined under fair value</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">based method for all awards,</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">net of related tax effects</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' 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; (43,000)</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (14,000)</font></p>
  </td>
 </tr>
 <tr style='height:.25in'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Pro-forma net income:</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.5pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  553,000&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.5pt double windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (8,000)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Basic earnings per share</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">As reported</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.06&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.00&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Pro-forma</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.06&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (0.00)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Diluted earnings per share:</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">As reported </font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.06&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  0.00&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

</div>

<p align=center style='text-align:center;text-autospace:none'><font size="2">&nbsp;-12-</font></p>





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

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

</div>



<font size="2">



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












</font>












<p style='text-autospace:none'><b><font size="2">NOTE 9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; MAJOR CUSTOMERS</font></b></p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">The Company had two major customers (defined as a customer that
represents greater than 10% of the Company's total revenues) in the nine months
ended March 31, 2007 and 2006.&nbsp; </font> </p>
<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=676
 style='width:100%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Revenues</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="2%">

  </td>
  <td colspan=2 valign=bottom style='border-left:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-right:1.0pt solid black; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Revenues</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-right:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="14%">
  <p align=center style='text-align:center'><font size="2">Nine Months</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="15%">
  <p align=center style='text-align:center'><font size="2">Three Months</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="11%">
  <p align=center style='text-align:center'><font size="2">Accts. Rec.</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="2%">

  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="14%">
  <p align=center style='text-align:center'><font size="2">Nine Months</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="15%">
  <p align=center style='text-align:center'><font size="2">Three Months</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">
  <p align=center style='text-align:center'><font size="2">Accts. Rec.</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">

  </td>
  <td colspan=3 valign=bottom style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Ended March 31,
  2007</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="2%">

  </td>
  <td colspan=3 valign=bottom style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Ended March 31,
  2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">
  <p><font size="2">Customer 1</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="14%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 3,350,000
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="15%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 1,722,000
	</font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="11%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 1,059,000
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="2%">

  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="14%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 2,909,000
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="15%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 469,000
	</font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 575,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">
  <p><font size="2">Customer 2</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="14%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 3,115,000
	</font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="15%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 1,058,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="11%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 476,000
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="2%">

  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="14%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 1,505,000
	</font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="15%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 594,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 16,000
	</font> </p>
  </td>
 </tr>
</table>





</div>





<p style='text-autospace:none'><b><font size="2">NOTE 10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; COMMITMENTS AND CONTINGENCIES</font></b></p>










<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">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; In many cases, the&nbsp;exposure to the company is limited by
insurance covering the potential damages associated with litigation.&nbsp;&nbsp;
Management is not aware of any material actual, pending or threatened
litigation at this time.</font></p>

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

<p><b><font size="2">COMPANY OVERVIEW</font></b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">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 nine and
three month periods ended March 31, 2007 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.</font></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">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.</font></p>
<p style='text-align:center;text-autospace:
none'><font size="2">-13-</font></p>

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<font size="2">



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










</font>










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










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

<p><b><font size="2">Description of Business</font></b></p>



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



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">All years relating to financial data herein shall refer to fiscal years
ending June 30, unless indicated otherwise.</font></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">Company-funded research and development supports the development of
generic rotary drive and motion control platforms.&nbsp; We then seek
customer-funded projects to customize these platforms to specific customer
requirements.&nbsp; Company-funded research and development projects are generally
expected to convert to customer-funded projects within six to eighteen months.&nbsp;
Company funded project costs are expensed as incurred.&nbsp; In the three months
ended March 31, 2007, $664,000 was expensed; an increase of $98,000 or 17%,
from the $566,000 expensed in the three months ended March 31, 2006.&nbsp; The
increase is attributable to the expensing of previously capitalized product
development cost.&nbsp; </font> </p>



<p align="justify" style="text-indent: 0.5in"><font size="2">Customer-funded research and development provided
no revenue in the three months ended March 31, 2007, and $10,000 in revenue in
the three months ended March 31, 2006, reflecting no development fees billable
during the quarter as engineering efforts were focused on pre-contract
development work, as well as on upgrading current products and supporting
warranty work.&nbsp; The results of customer-funded development work are intended to
provide long-term exclusive manufacturing agreements and provide the customer
with the retention of the specified intellectual property developed.&nbsp; The
identity of the customer is generally protected by a non-disclosure agreement.</font></p>
<p align="center"><font size="2">-14-</font></p>



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<font size="2">



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










</font>










<p align="justify" style="text-indent: 0.5in"><font size="2">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 March 31, 2007, $15,000 was recognized as cost of sales,
compared to $27,000 recognized as cost of sales in the three months ended March
31, 2006, reflecting an increase in deliveries of the products associated with
prior development projects. </font> </p>



<p style='text-autospace:ideograph-numeric ideograph-other; text-indent:0.5in' align="justify"><font size="2">The
Company's revenue is derived from five main customer types.&nbsp; The proportion of
Pro-Dex total sales to each customer type is noted in the table below:</font></p>












<div align="center">












<table class=MsoNormalTable border=0 cellpadding=0 width=708
 style='width:100%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="34%">

  </td>
  <td colspan=4 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Three months <br>
	Ended
  March 31,</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="1%">

  </td>
  <td colspan=4 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Nine months <br>
	Ended
  March 31,</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="34%">
  <p align=center style='text-align:center'><font size="2">Sales by customer
  type ($'000)</font></p>
  </td>
  <td colspan=2 valign=bottom style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td colspan=2 valign=bottom style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid black;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="1%">

  </td>
  <td colspan=2 valign=bottom style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td colspan=2 valign=bottom style='border-top:
  medium none;border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid black;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="35%">
  <p><font size="2">Dental</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">
  <p><font size="2">&nbsp;$ 1,466 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">25%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">
  <p><font size="2">&nbsp;$ 1,011 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">24%</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="1%">

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">
  <p><font size="2">&nbsp;$&nbsp; 3,653
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">23%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">
  <p><font size="2">&nbsp;$&nbsp; 2,815
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">24%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="35%">
  <p><font size="2">Medical*</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">
  <p><font size="2">&nbsp;$ 2,488 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">42%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">
  <p><font size="2">&nbsp;$ 1,306 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">31%</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="1%">

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">
  <p><font size="2">&nbsp;$&nbsp; 6,340
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">40%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">
  <p><font size="2">&nbsp;$&nbsp; 4,926
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">42%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="35%">
  <p><font size="2">Industrial</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 758
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">13%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 801
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">19%</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="1%">

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">
  <p><font size="2">&nbsp;$&nbsp; 2,518
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">16%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">
  <p><font size="2">&nbsp;$&nbsp; 2,228
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">19%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="35%">
  <p><font size="2">Aerospace*</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 633
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">11%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 586
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">14%</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="1%">

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">
  <p><font size="2">&nbsp;$&nbsp; 1,794
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">11%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 586
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">5%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="35%">
  <p><font size="2">Government, repairs and other</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 571
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">10%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 510
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">12%</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="1%">

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">
  <p><font size="2">&nbsp;$&nbsp; 1,475
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">9%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">
  <p><font size="2">&nbsp;$&nbsp; 1,173
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p align=right style='text-align:right'><font size="2">10%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="35%">
  <p><font size="2">Total Sales</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">
  <p><font size="2">&nbsp;$ 5,916 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p><font size="2">100%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">
  <p><font size="2">&nbsp;$ 4,214 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p><font size="2">100%</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="1%">

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">
  <p><font size="2">&nbsp;$15,780 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p><font size="2">100%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">
  <p><font size="2">&nbsp;$11,728 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">
  <p><font size="2">100%</font></p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="35%">

  &nbsp;&nbsp;

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="8%">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">

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

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="9%">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="6%">

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



</div>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=641
 style='width:100%;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="29%">

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Three Months <br>
	Ended
  March 31,</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="1%">

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Nine Months <br>
	Ended
  March 31,</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="29%">
  <p align=center style='text-align:center'><font size="2">Sales by location
  ($'000)</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="17%">
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="17%">
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="1%">

  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="17%">
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="17%">
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="29%">
  <p><font size="2">Santa Ana</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="17%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  4,034 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="17%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2,302 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="1%">

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="16%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10,060
  </font>
  </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="17%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  8,370 </font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="29%">
  <p><font size="2">Beaverton</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="17%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,007
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="17%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,100
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="1%">

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="16%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,068
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="17%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,546
	</font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="29%">
  <p><font size="2">Carson City*</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="17%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 875
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="17%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 812
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="1%">

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="16%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,652
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="17%">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 812
	</font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="29%">
  <p><font size="2">Total Sales</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="17%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  5,916 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="17%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  4,214 </font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="1%">

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="16%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 15,780
  </font>
  </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" width="17%">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 11,728
  </font>
  </p>
  </td>
 </tr>
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="29%">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="17%">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="17%">

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

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="17%">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="17%">

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



</div>



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



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">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 semiconductor, 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; The Pro-Dex Astromec products include highly reliable fractional horsepower DC
motors designed for harsh environments.&nbsp; </font> </p>



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



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">At the present time, we are generally able to fill orders within sixty
(60) days.&nbsp; At March 31, 2007, we had a backlog, including orders for delivery
beyond 60 days, of $9.3 million compared with a backlog of $10.7 million at
March 31, 2006.&nbsp; We expect to ship our entire backlog in the remainder of
fiscal year 2007 and in fiscal year 2008.&nbsp; The decreased backlog compared to
March 31, 2006 is due to the high level of sales in the current quarter that
have not yet been replaced with new orders.&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; </font> </p>
<p style='text-align:center;text-autospace:
none'><font size="2">-15-</font></p>

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

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

</div>



<font size="2">



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












</font>












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

<p><b><font size="2">CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS</font></b></p>










<p style='text-align:justify;text-indent:.5in'><font size="2">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 and estimates 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, valuation of goodwill and other intangible assets, and the
recoverability of deferred income tax assets.</font></p>



<p style='text-align:justify; text-indent:0.5in'><font size="2">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. </font> </p>



<p style='text-align:justify; text-indent:0.5in'><font size="2">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.</font></p>



<p style='text-align:justify;text-indent:.5in'><font size="2">The majority of
our products have a twelve-month warranty.&nbsp; We determine our warranty
reserve by 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 determine 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 March 31,
2007 we had $402,000 in accrued warranty reserve, of which, $124,000 was for
known repairs in products returned and in house, and $278,000 for future anticipated costs, compared to
$147,000 for known repairs and $128,000 for future anticipated costs in the
March 31, 2006 warranty reserve. The reserve amount for products in the field
expected to be returned has grown due to the higher rates of return realized as
the product line aged that was higher than previously estimated.</font></p>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=423
 style='width:75%;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:left'><font size="2">&nbsp;&nbsp;&nbsp; Warranty Reserve
  ($'000)</font></p>
  </td>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">3/31/2007</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">6/30/2006</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">3/31/2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">In house</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 124&nbsp;&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 139&nbsp;&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 147&nbsp;&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">In field</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">278&nbsp;&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">170&nbsp;&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">128&nbsp;&nbsp;</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Total Accrual</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 402&nbsp;&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 309&nbsp;&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 275&nbsp;&nbsp;</font></p>
  </td>
 </tr>
</table>

</div>

<p align=center style='text-align:center;'><font size="2">.&nbsp;
- -16-</font></p>



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

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

</div>



<font size="2">



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










</font>










<p style='text-indent:.5in'><font size="2">We account for goodwill and other
intangible assets in accordance with&nbsp; 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 as
of April 1 of each year.&nbsp; </font> </p>










<p style='text-autospace:ideograph-numeric ideograph-other; text-indent:0.5in' align="justify"><font size="2">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 that 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.</font></p>



<p style='text-autospace:ideograph-numeric ideograph-other; text-indent:0.5in' align="justify"><font size="2">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.</font></p>



<p style='text-align:justify;text-indent:.5in'><font size="2">We account for
share-based payment awards in accordance with SFAS
123(R) which 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.</font></p>



<p style='text-autospace:none'><b><font size="2">RESULTS OF OPERATIONS </font> </b></p>

<p style='text-autospace:none'><b><font size="2">For the Three-Month periods
ended March 31, 2007 and 2006</font></b></p>

<p align="center"><font size="2">-17-</font></p>

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

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

</div>



<font size="2">



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












</font>












<b><font size="2">&nbsp;</font></b><p><font size="2">The following table sets forth for the
periods indicated the percentage of net revenues represented by each item in
our Consolidated Statements of Income. </font></p>












<div align="center">












<table class=MsoNormalTable border=0 cellpadding=0 width=579
 style='width:75%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">(In Thousands)</font></p>
  </td>
  <td colspan=4 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1px solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Three Months Ended
  March 31, </font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:1px solid #000000;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td colspan=2 valign=bottom style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:1px solid #000000;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net sales:</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 5,916&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">100.0%</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 4,214&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">100.0%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Cost of sales</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,760&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">63.6%</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,759&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">65.5%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Gross Profit</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,156&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">36.4%</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,455&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">34.5%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

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

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Selling, general and administrative expenses</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,140&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">19.3%</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 881&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">20.9%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Research and development costs</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 664&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">11.2%</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 566&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">13.4%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Income from Operations</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 352&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">5.9%</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">0.2%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net interest and other income</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (66)</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">(1.1%)</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (8)</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">(0.2%)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

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

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Provision for Income Taxes</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 70&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">1.2%</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (6)</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1px solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">-0.1%</font></p>
  </td>
 </tr>
 <tr style='height:16.5pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net Income</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:2.25pt double windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 216&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:2.25pt double windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">3.7%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:2.25pt double windowtext;
  border-right:1.0pt solid windowtext;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">0.1%</font></p>
  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

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

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



</div>



<p style='text-align:justify;text-indent:.5in'><b><font size="2">Net Sales.</font></b><font size="2">&nbsp;
Consolidated sales increased 40% from $4,214,000 to $5,916,000 for the quarter
ended March 31, 2007, compared to the quarter ended March 31, 2006.&nbsp;
Revenue gains were led by a $1,182,000 or 90% increase in medical product sales
followed by a $455,000 or 45% increase in the dental revenues, with smaller
gains in government and repair, and aerospace products offset by a small
decline in industrial product sales.&nbsp; </font> </p>



<p style='text-autospace:ideograph-numeric ideograph-other; text-indent:0.5in' align="justify"><font size="2">Although
selective price increases and decreases were implemented in response to market
conditions, the majority of the sales growth and declines for each product line
is due primarily to changes in sales volume, not the effect of price changes.&nbsp;
</font> </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b><font size="2">Gross Profit and Gross Profit Percentage of Sales</font></b><font size="2">.&nbsp; Our consolidated
gross profit for the quarter ended March 31, 2007 increased 48% over the same
quarter in the previous year due the sales volume increase, especially in the
medical products, together with moderating product warranty costs that declined
to $195,000 from $360,000 in the prior year's third quarter.&nbsp; Gross profit as a
percentage of sales increased to 36.4% for the quarter ended March 31, 2007
compared to 34.5% for the quarter ended March 31, 2006 due to the favorable
product mix weighted to medical products, the lower warranty costs and better
fixed cost absorption associated with the higher sales.&nbsp; Gross profit and gross
profit percentage were as follows:</font></p>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=529
 style='width:75%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Three Months Ended
  March 31,</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Increase</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Gross Profit</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$2,156,000</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$1,455,000</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">48.2%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Gross Profit Percentage of Sales</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">36.4%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">34.5%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">5.5%</font></p>
  </td>
 </tr>
</table>



</div>



<p style='text-align:center;text-autospace:
none'><font size="2">-18-</font></p>



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

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

</div>



<font size="2">



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










</font>










<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b><font size="2">Selling, General and Administrative Costs (S, G&amp;A)</font></b><font size="2">.&nbsp; S, G
&amp; A expenses increased to $1,141,000 for the quarter ended March 31, 2007
from $881,000 for the quarter ended March 31, 2006.&nbsp; General and administrative
expenses were up $113,000 due to the adoption of FAS 123(R) and the related expensing of options and
restricted stock grants that was adopted with this fiscal year and to the legal
fees associated with share registration expenses for the option plan approved
at the last annual meeting.&nbsp; The increase in sales and marketing expense is due
to a higher level of print advertising and trade show activity.&nbsp; S, G &amp; A
costs were as follows: </font> </p>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=524
 style='width:75%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Three Months Ended
  March 31,</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Increase/</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">(Decrease)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Selling</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 361,000
  </font>
  </p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 317,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">14%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">General and administrative</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 780,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 564,000
	</font> </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">38%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Total S, G&amp;A</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,141,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 881,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">30%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">S, G&amp;A as a Percentage of Sales</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">19%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">21%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">-8%</font></p>
  </td>
 </tr>
</table>





</div>










<p style='text-align:justify;text-indent:.5in'><b><font size="2">Research and
Development Costs</font></b><font size="2">.&nbsp; Company-funded research and development expenses
increased to $664,000 for the quarter ended March 31, 2007 from $566,000 for
the quarter ended March 31, 2006.&nbsp; The increase in research and development
costs is attributable to higher new product development costs associated with
the expensing of previously capitalized product development costs.&nbsp;
Company-funded research and development costs were as follows:</font></p>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=524
 style='width:75%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Three Months Ended
  March 31,</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align="center"><font size="2">Increase/</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">(Decrease)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Research and Development costs</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 664,000
  </font>
  </p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 566,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">17%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">R &amp; D as a Percentage of Sales</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">11%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">13%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">-16%</font></p>
  </td>
 </tr>
</table>



</div>



<p style='text-align:justify;text-indent:.5in'><b><font size="2">Operating
Profit and Operating Profit </font> </b><font size="2"><b>Percentage of Sales</b>.&nbsp; Our
consolidated operating profit for the quarter ended March 31, 2007 increased to
$351,000 compared to operating profit of $8,000 for the same quarter in the
previous year.&nbsp; The increase was due to the higher sales and associated gross
margin that increased at a higher rate than the higher S, G &amp; A expenses.&nbsp;
Consequently, operating profit as a percentage of sales increased to 5.9% for
the quarter ended March 31, 2007 compared to 0.2% for the quarter ended March
31, 2006.&nbsp; Operating profit and margin were as follows: </font> </p>

<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=613
 style='width:75%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Three Months Ended
  March 31, </font> </p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Increase</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Operating Profit</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$351,000</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$8,000</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">4288%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Operating Profit as a percentage of Sales</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">5.9%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">0.2%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">3025%</font></p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b><font size="2">Royalties and Other Income. </font> </b><font size="2">&nbsp;The Company recognized $5,000 in
royalty income in the three months ended March 31, 2007, compared to $5,000 in
the prior year's third fiscal quarter.</font></p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b><font size="2">Interest. </font> </b><font size="2">&nbsp;Interest expense
was $66,000 in the quarter ended March 31, 2007, compared to an expense of
$12,000 in the prior year's quarter as the Company incurred debt to fund its
asset acquisitions in fiscal year 2006.&nbsp; This debt was not outstanding throughout the full quarter ending March 31, 2006. </font> </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b><font size="2">Provision for Taxes</font></b><font size="2">. Our estimated effective combined federal and
state tax rate on income from operations for the quarter ended March 31, 2007
was 24.4% as compared to a benefit for the quarter ended March 31, 2006 as the
continued use of R&amp;D tax credits reduced our effective tax rates below
40%.&nbsp;&nbsp; </font> </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b><font size="2">Net Income.</font></b><font size="2">&nbsp; Our net income for the three months ended March 31,
2007 was $216,000 or $0.02 per share on a basic and diluted basis, as compared
to a net income of $6,000 or $0.00 per share on a basic and diluted basis for
the three months ended March 31, 2006.</font></p>

<p style='text-autospace:none' align="center"><font size="2">&nbsp;-19-</font></p>

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

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

</div>



<font size="2">



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










</font>










<p style='text-autospace:none'><b><font size="2">For the Nine-Month periods
ended March 31, 2007 and 2006</font></b></p>

<p style="text-indent: 0.5in"><font size="2">The following table sets forth for the
periods indicated the percentage of net revenues represented by each item in
our Consolidated Statements of Income. </font> </p>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=609
 style='width:100%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">(In Thousands)</font></p>
  </td>
  <td colspan=4 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1px solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' bordercolor="#000000">
  <p align=center style='text-align:center'><font size="2">Nine Months Ended
  March 31, </font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:1px solid;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' bordercolor="#000000">
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td colspan=2 valign=bottom style='border-top:medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:1px solid;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' bordercolor="#000000">
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net sales:</font></p>
  </td>
  <td valign=bottom style='border-right:1px solid; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;$&nbsp; 15,780&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-right:1px solid; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">100.0%</font></p>
  </td>
  <td valign=bottom style='border-right:1px solid; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;$&nbsp; 11,728 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">100.0%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Cost of sales</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1px solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; 10,274&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:1px solid; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">65.1%</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1px solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6,854 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">58.4%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Gross Profit</font></p>
  </td>
  <td valign=bottom style='border-right:1px solid; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,506&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-right:1px solid; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">34.9%</font></p>
  </td>
  <td valign=bottom style='border-right:1px solid; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,874 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">41.6%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

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

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Selling, general and administrative expenses</font></p>
  </td>
  <td valign=bottom style='border-right:1px solid; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,145&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-right:1px solid; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">19.9%</font></p>
  </td>
  <td valign=bottom style='border-right:1px solid; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,511 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">21.4%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Research and development costs</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1px solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,890&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:1px solid; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">12.0%</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1px solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,451 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">12.4%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Income from Operations</font></p>
  </td>
  <td valign=bottom style='border-right:1px solid; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 471&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">3.0%</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in; border-right-style:solid; border-right-width:1px' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 912
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">7.8%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;

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

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

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

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net interest and other income</font></p>
  </td>
  <td valign=bottom style='border-right:1px solid; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (142)</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">(0.9%)</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in; border-right-style:solid; border-right-width:1px' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 66
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">0.6%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Provision for Income Taxes</font></p>
  </td>
  <td valign=bottom style='border-right:1px solid; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1px solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">0.1%</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:1px solid; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 382
	</font> </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1px solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">3.3%</font></p>
  </td>
 </tr>
 <tr style='height:16.5pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net Income</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1px solid windowtext; border-top:1.0pt solid windowtext; border-bottom:2.25pt double windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 319&nbsp;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:1px solid; border-top:medium none; border-bottom:2.25pt double windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">2.0%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:2.25pt double windowtext;
  border-right:1px solid windowtext;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 596 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:2.25pt double windowtext;border-right:1px solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right" bordercolor="#000000">
  <p align=right style='text-align:right'><font size="2">5.1%</font></p>
  </td>
 </tr>
 <tr style='height:13.5pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

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

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

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



</div>



<p style='text-align:justify;text-indent:.5in'><b><font size="2">Net Sales.</font></b><font size="2">&nbsp;
Consolidated sales increased from $11,728,000 to $15,780,000 ($4,052,000 or
35%) for the nine months ended March 31, 2007, compared to the nine months
ended March 31, 2006.&nbsp; A portion of the increase was due to the addition
of Pro-Dex Astromec, which added $1,840,000 to the consolidated net sales.&nbsp; Of
the non-Astromec related net sales changes, increases were in medical shipments
of $818,000, dental products of $815,000, industrial and government motion
control products of $559,000 and medical product related repair revenue of
$261,000.&nbsp; </font> </p>



<p style='text-align:justify;text-indent:.5in'><font size="2">Although
selective price increases and decreases were implemented in response to market
conditions, the majority of the sales growth and declines for each product line
is due primarily to changes in sales volume, not the effect of price changes.
</font> </p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b><font size="2">Gross Profit and Gross Profit Percentage of Sales</font></b><font size="2">.&nbsp; Our
consolidated gross profit for the nine months ended March 31, 2007 increased
13% over the same period in the previous year corresponding with the sales
level increase and the full nine-month contribution form Astromec.&nbsp; Gross
profit as a percentage of sales decreased to 34.9% for the nine months ended
March 31, 2007 compared to 41.6% for the nine months ended March 31, 2006.&nbsp; We
had $715,000 in warranty costs in the nine months ended March 31, 2007 as
compared to $551,000 in the nine months ended March 31, 2006 as earlier
revisions of products aged further into their warrantable lives&nbsp; Gross profit
and gross profit percentage were as follows:</font></p>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=529
 style='width:75%;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Nine Months Ended
  March 31,</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Increase/</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">(Decrease)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Gross Profit</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$5,506,000</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$4,874,000</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">13.0%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Gross Profit Percentage of Sales</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">34.9%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">41.6%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">-16.0%</font></p>
  </td>
 </tr>
</table>


<p><font size="2">-20-</font></p>


</div>

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

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

</div>



<font size="2">



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










</font>










<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b><font size="2">Selling, General and Administrative Costs (S, G&amp;A)</font></b><font size="2">.&nbsp; S, G
&amp; A expenses increased to $3,145,000 for the nine months ended March 31,
2007 from $2,511,000 for the nine months ended March 31, 2006.&nbsp; The majority of
the Selling expense increase is due to a $81,000 increase in bad debt expense,
with the remaining increases primarily in (i) consulting, (ii) trade shows and
(iii) advertising by $86,000 and $17,000, and $22,000 respectively.&nbsp; The
general and administrative (G&amp;A) increase was largely due to the adoption
of FAS 123 (R), which added a $198,000 year to date expense recognition.&nbsp; A
majority of the remainder of the increased costs was the addition of Pro-Dex
Astromec in January 2006, which added $184,000 to the total consolidated
general and administrative (G&amp;A) costs.&nbsp; As a percentage of sales, S,
G&amp;A expenses decreased to 20% of sales from 21% of sales.&nbsp; S, G &amp; A
costs were as follows:</font></p>

<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=507
 style='width:75%;margin-left:4.4pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Nine Months Ended
  March 31,</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Increase/</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">(Decrease)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Selling</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,039,000
  </font>
  </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 827,000
	</font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">26%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">General and administrative</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,106,000
	</font> </p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p><font size="2">&nbsp;$&nbsp; 1,684,000 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">25%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Total S, G&amp;A</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,145,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp; 2,511,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">25%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">S, G&amp;A as a Percentage of Sales</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">20%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">21%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' align="right">
  <p align=right style='text-align:right'><font size="2">-7%</font></p>
  </td>
 </tr>
</table>



</div>

<p style='text-align:justify;text-indent:.5in'><b><font size="2">Research and
Development Costs</font></b><font size="2">.&nbsp; Company-funded research and development expenses
increased to $1,890,000 for the nine months ended March 31, 2007 from
$1,431,000 for the nine months ended March 31, 2006.&nbsp; The addition of Pro-Dex
Astromec added $164,000 to the total consolidated research and development
costs and the remainder was due to approximately $191,000 for increased
independent research and test parts, $30,000 in higher personnel costs and
$30,000 in higher tooling costs to enhance the capabilities of our product
development group.&nbsp; Company-funded research and development costs were as
follows:</font></p>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=497
 style='width:75%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Nine Months Ended
  March 31,</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Increase/</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">(Decrease)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Research and Development costs</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 1,890,000
	</font> </p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp; 1,451,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">30%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">R &amp; D as a Percentage of Sales</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">12%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">12%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">-3%</font></p>
  </td>
 </tr>
</table>





</div>





<p style='text-align:justify;text-indent:.5in'><b><font size="2">Operating
Profit and Operating Profit </font> </b><font size="2"><b>Percentage of Sales</b>.&nbsp; Our
consolidated operating profit for the nine months ended March 31, 2007
decreased to $471,000 compared to operating profit of $912,000 for the same
nine months in the previous year.&nbsp; The decrease was due to the lower gross
margin coupled with a higher absolute level of operating expenses, although
lower as a percent of sales.&nbsp; Consequently, operating profit as a percentage of
sales decreased to 3% for the nine months ended March 31, 2007 compared to 8%
for the nine months ended March 31, 2006.&nbsp; Operating profit and margin were as
follows:</font></p>

<div align="center">

<table class=MsoNormalTable border=0 cellpadding=0 width=569
 style='width:75%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Nine Months Ended
  March 31, </font> </p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">(Decrease)</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Operating Profit</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$471,000</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$912,000</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">-48%</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Operating Profit Percentage of Sales</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">3%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">8%</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">-62%</font></p>
  </td>
 </tr>
</table>

</div>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b><font size="2">Royalties and Other Income. </font> </b><font size="2">&nbsp;We received $30,000 in royalty
payments in the nine months ended March 31, 2007, compared to $42,000 in
royalty payments in the nine months ended March 31, 2006.</font></p>










<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b><font size="2">Net Interest Expense. </font> </b><font size="2">&nbsp;Net
interest expense was $179,000 for the
nine months ended March 31, 2007, compared to a $31,000 net interest income in
the prior year's same nine month period due to the reduction in cash and
assumption of debt related to the asset acquisitions completed in fiscal year
2006.</font></p>

<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b><font size="2">Provision for Taxes</font></b><font size="2">. Our
estimated effective combined federal and state tax rate on income from
operations for the nine months ended March 31, 2007 was 3% of earnings before
tax compared to an expense rate of 39% of earnings before tax for the nine
months ended March 31, 2006.&nbsp; The difference in the 2007 rate is due to the
use of state tax credits coupled with a retroactive reinstatement of the federal
research and development credit of
$64,000 in the second quarter.&nbsp; The reinstatement was for expenses incurred
after December 31, 2005.</font></p>





<p align=center style='text-align:center'><font size="2">-21-</font></p>

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

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

</div>



<font size="2">



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










</font>










<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><b><font size="2">Net Income.</font></b><font size="2">&nbsp; Our net income for the nine months ended March 31,
2007 was $319,000 or $0.03 per share on a basic and diluted basis, as compared
to a net income of $596,000 or $0.06 per share on a basic and diluted basis for
the nine months ended March 31, 2006.&nbsp;&nbsp;&nbsp;&nbsp; </font> </p>

<p style='text-autospace:none'><b><font size="2">Liquidity and Capital
Resources</font></b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">The following table presents selected financial information for the dates
indicated:</font></p>



<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=624
 style='width:90%;margin-left:0pt;border-collapse:collapse'>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">As of March 31,</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Year Ending</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">June 30, 2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Cash and cash equivalents</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$319,000 </font> </p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$409,000 </font> </p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$358,000 </font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Working Capital&#185;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$6,536,000 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$6,041,000 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$6,087,000 </font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Credit Line outstanding balance</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$1,200,000 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$1,000,000 </font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$900,000 </font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Tangible book value/common share&#178;</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$0.87 </font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$0.80 </font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$0.81 </font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Number of days of sales outstanding (DSO) in</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

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

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">accounts receivable at end of quarter&#179;</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">54</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">63</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">66</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  &nbsp;&nbsp;

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

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

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

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Nine Months Ended
  March31, </font> </p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:medium none;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Year Ending</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>

  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2007</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">2006</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">June 30, 2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p><font size="2">Net cash provided by operations</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$298,000 </font> </p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">($154,000)</font></p>
  </td>
  <td valign=bottom style='border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-left:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=right style='text-align:right'><font size="2">$55,000 </font> </p>
  </td>
 </tr>
</table>







</div>







<p style='margin-left:.5in;text-align:justify;text-autospace:
none'><sup><font size="2">1</font></sup><font size="2"> Working Capital = Ending Current Assets balance less Ending
Current Liabilities balance.</font></p>



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

<p style='margin-left:.5in;text-align:justify;text-autospace:
none'><sup><font size="2">3</font></sup><font size="2"> DSO = Ending Net Accounts Receivable balance / (Previous
Quarter Sales / 91).</font></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">Our working capital at March 31, 2007 increased to $6.5 million compared
to $6.0 million at March 31, 2006 and increased from $6.1 million at June 30,
2006.&nbsp; Cash flow provided by operations was $298,000 in the nine months ended
March 31, 2007 compared to a use of $154,000 for the nine months ended March
31, 2006.&nbsp; Cash provided by the profitable operations and reduction in accounts
receivable and was primarily used to increase inventory.</font></p>
<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">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 March 31, 2007); or LIBOR plus
2.50% (7.875% (one month) to 7.875% (three months) at March 31, 2007), at our
discretion, based on outstanding borrowings with no minimum interest charge.&nbsp;
There is an unused credit line fee of 0.175% per anum 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
March 31, 2007.&nbsp; The total eligible additional borrowing capacity at March
31, 2007 was $800,000.&nbsp; </font></p>
<p style='text-align:center;text-autospace:
none'><font size="2">-22-</font></p>



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</font>










<p style='text-align:justify;text-indent:.5in'><font size="2">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 March 31, 2007); or LIBOR plus
2.50% (7.875% (one month) to 7.875% (three months) at March 31, 2007), 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 $708,000 outstanding balance under the term
note as of March 31, 2007.&nbsp; </font> </p>



<p style='text-align:justify;text-indent:.5in'><font size="2">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 $1,626,000 outstanding balance under
the terms of this mortgage as of March 31, 2007.&nbsp;</font></p>



<p style='text-autospace:ideograph-numeric ideograph-other; text-indent:0.5in' align="justify"><font size="2">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 March 31, 2007, management believes that the
Company was in compliance with all such covenants.</font></p>



<p style='text-align:justify;text-indent:.5in'><font size="2">At March 31,
2007, we had cash and cash equivalents of $319,000.&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;
</font> </p>



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



<p style='text-align:justify;line-height:normal'><b><font size="2">RISK FACTORS</font></b></p>

<p style='text-align:justify;line-height:normal; text-indent:0.5in'>
<font size="2">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.</font></p>



<p style='margin-bottom:6.0pt;text-align:justify'><b><font size="2">We face
the risks and uncertainties that are associated with litigation against us.
</font></b></p>
<p style='margin-bottom:6.0pt;text-align:justify; text-indent:0.5in'>
<font size="2">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. </font> </p>
<p style='margin-bottom:6.0pt;text-align:center'><font size="2">-23-</font></p>

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

</div>



<font size="2">



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










</font>










<p style='margin-bottom:6.0pt;text-align:justify; text-indent:0.5in'>
<font size="2">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.</font></p>



<p style='margin-bottom:6.0pt;text-align:justify'><b><font size="2">Our
products may be subject to product liability legal claims.</font></b><i><font size="2">
</font> </i></p>

<p style='margin-bottom:6.0pt;text-align:justify; text-indent:0.5in'>
<font size="2">We
maintain insurance to protect against claims associated with the use of our
products, but 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. A successful claim brought against us in excess
of our insurance coverage could have a material adverse affect 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.</font></p>

<p style='text-align:justify;line-height:normal'><b><font size="2">The loss
of a major customer may cause a negative impact upon our revenue and earnings.</font></b></p>

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



<p style='text-align:justify; text-indent:0.5in'><font size="2">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; </font> </p>



<p style='text-align:justify; text-indent:0.5in'><font size="2">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.</font></p>

<p style='text-align:justify;line-height:normal'><b><font size="2">SIGNIFICANT ACCOUNTING POLICIES</font></b></p>










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

<p style='text-align:justify;text-indent:.5in;line-height:
normal'><font size="2">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.</font></p>
<p style='text-align:center;line-height:
normal'><font size="2">-24-</font></p>

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

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

</div>



<font size="2">



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










</font>










<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">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 derecognizing, 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.</font></p>



<p style='text-align:justify'><b><font size="2">MAJOR CUSTOMERS</font></b></p>



<p style='text-align:justify;text-indent:.5in;text-autospace:
none'><font size="2">The Company had two major customers (defined as a customer that
represents greater than 10% of the Company's total revenues) in the nine months
ended March 31, 2007 and 2006.&nbsp; </font> </p>
<div align="center">



<table class=MsoNormalTable border=0 cellpadding=0 width=676
 style='width:100%;margin-left:0pt;border-collapse:collapse' id="table3">
 <tr style='height:12.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">

  </td>
  <td colspan=2 valign=bottom style='border-top:
  1.0pt solid windowtext;border-left:1.0pt solid windowtext;border-bottom:medium none;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Revenues</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">

  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="2%">

  </td>
  <td colspan=2 valign=bottom style='border-left:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-right:1.0pt solid black; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Revenues</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">

  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">

  </td>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-right:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="14%">
  <p align=center style='text-align:center'><font size="2">Nine Months</font></p>
  </td>
  <td valign=bottom style='border-top:1.0pt solid windowtext;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:medium none;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="15%">
  <p align=center style='text-align:center'><font size="2">Three Months</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="11%">
  <p align=center style='text-align:center'><font size="2">Accts. Rec.</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="2%">

  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="14%">
  <p align=center style='text-align:center'><font size="2">Nine Months</font></p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="15%">
  <p align=center style='text-align:center'><font size="2">Three Months</font></p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">
  <p align=center style='text-align:center'><font size="2">Accts. Rec.</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">

  </td>
  <td colspan=3 valign=bottom style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Ended March 31,
  2007</font></p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="2%">

  </td>
  <td colspan=3 valign=bottom style='border-top:
  medium none;border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:1.0pt solid black;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in'>
  <p align=center style='text-align:center'><font size="2">Ended March 31,
  2006</font></p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-top:1.0pt solid windowtext; border-bottom:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">
  <font size="2">Customer 1</font></td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="14%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 3,350,000
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="15%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 1,722,000
	</font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="11%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 1,059,000
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="2%">

  </td>
  <td valign=bottom style='border-right:medium none; border-top:medium none; border-bottom:medium none; border-left:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="14%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 2,909,000
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="15%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 469,000
	</font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-top:medium none; border-bottom:medium none; border-right:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 575,000
	</font> </p>
  </td>
 </tr>
 <tr style='height:15.75pt'>
  <td valign=bottom style='border-left:1.0pt solid windowtext; border-right:1.0pt solid windowtext; border-bottom:1.0pt solid windowtext; border-top:medium none; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">
  <font size="2">Customer 2</font></td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="14%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 3,115,000
	</font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="15%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 1,058,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="11%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 476,000
	</font> </p>
  </td>
  <td valign=bottom style='padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="2%">

  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:1.0pt solid windowtext;border-bottom:1.0pt solid windowtext;
  border-right:medium none;padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="14%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp; 1,505,000
	</font> </p>
  </td>
  <td valign=bottom style='border-left:medium none; border-right:medium none; border-top:medium none; border-bottom:1.0pt solid windowtext; padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="15%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 594,000
	</font> </p>
  </td>
  <td valign=bottom style='border-top:medium none;
  border-left:medium none;border-bottom:1.0pt solid windowtext;border-right:1.0pt solid windowtext;
  padding-left:.85pt; padding-right:.85pt; padding-top:0in; padding-bottom:0in' width="12%">
  <p align=right style='text-align:right'><font size="2">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp; 16,000
	</font> </p>
  </td>
 </tr>
</table>





</div>





<p style='text-align:justify;text-autospace:none'><b><font size="2">Item 3.
Controls and Procedures</font></b></p>

<p style='text-align:justify;text-indent:.5in'><font size="2">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 March 31, 2007, 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.</font></p>
<p style='text-align:justify;text-indent:.5in'><font size="2">During the
quarter ended March 31, 2007, 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.</font></p>
<p style='text-align:center;'><font size="2">-25-</font></p>

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

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

</div>



<font size="2">



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












</font>












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










<p style='text-align:justify'><b><font size="2">PART II</font></b></p>

<p align=center style='text-align:center;text-autospace:none'><b><font size="2">OTHER
INFORMATION</font></b></p>



<table border="0" style="border-collapse: collapse" width="100%" id="table2">
	<tr>
		<td nowrap valign="top" width="5%"> <b><font size="2">Item 1.
</font> </b></td>
		<td valign="top" width="94%" colspan="3">



<p style='text-autospace:none'><b><font size="2">Legal Proceedings
</font> </b></p>



		</td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" colspan="3">



<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 valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%">&nbsp; </td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%"> <b><font size="2">Item 2.</font></b></td>
		<td valign="top" colspan="3">

<p style='text-align:justify'><font size="2"><b>Unregistered Sales of
Equity Securities and Use of Proceeds. </b>&nbsp;</font></p>

		</td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%"><font size="2">None.</font></td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%">&nbsp; </td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%">&nbsp; </td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%"><font size="2"><b>Item 3.</b></font></td>
		<td valign="top" colspan="3">

<p style='text-align:justify'><font size="2"><b>Defaults Upon Senior
Securities. </b>&nbsp;</font></p>

		</td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%"><font size="2">None.</font></td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%">&nbsp;</td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%">&nbsp; </td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%"> <b><font size="2">Item 4. </font> </b>
		</td>
		<td valign="top" colspan="3">

<p style='text-align:justify'><font size="2"><b>Submissions of Matters
to a Vote of Securities Holders. </b>&nbsp;</font></p>

		</td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%"><font size="2">None.&nbsp;&nbsp;&nbsp;&nbsp;
</font> </td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%">&nbsp;</td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%">&nbsp; </td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%"> <b><font size="2">Item 5. </font> </b>
		</td>
		<td valign="top" width="93%" colspan="3">

<p style='text-align:justify'><font size="2"><b>Other Information. </b>&nbsp;</font></p>

		</td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%"><font size="2">None.</font></td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%">&nbsp;</td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%">&nbsp; </td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%"><b><font size="2">Item 6.</font></b></td>
		<td valign="top" width="8%">

<p style='text-align:justify'><b><font size="2">Exhibits.
</font> </b><font size="2">&nbsp;</font></p>

		</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%">&nbsp;</td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%">&nbsp; </td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">

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



		</td>
		<td valign="top" width="8%"><u><font size="2">Exhibits</font></u><font size="2">:</font></td>
		<td valign="top" width="77%">&nbsp;</td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%"><font size="2">10.1</font></td>
		<td valign="top" width="77%" align="justify"><font size="2">Restricted Stock Grant Agreement by and between the Company and Mark Murphy,
dated February 21, 2007 (incorporated by reference to Exhibit 10.1 to the Form
8-K filed with the SEC on February 23, 2007).</font></td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%" align="justify">&nbsp; </td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%"><font size="2">31.1</font></td>
		<td valign="top" width="77%" 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></td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%" align="justify">&nbsp; </td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%"><font size="2">31.2</font></td>
		<td valign="top" width="77%" 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></td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="77%" align="justify">&nbsp; </td>
	</tr>
	<tr>
		<td nowrap valign="top" width="5%">&nbsp;</td>
		<td valign="top" width="8%">&nbsp;</td>
		<td valign="top" width="8%"><font size="2">32</font></td>
		<td valign="top" width="77%" 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></td>
	</tr>
</table>
<p style='text-autospace:none'><font size="2">SIGNATURES </font></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; May 15, 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; May 15, 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'>

  &nbsp;

  </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>





<p align=center style='text-align:center;text-autospace:none'><b><font size="2">End of Filing</font></b></p>



<p align=center style='text-align:center'>&nbsp;</p>
<p align=center style='text-align:center'><font size="2">-26-</font></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><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">
	<tr>
		<td valign="top" nowrap><font size="2">1.</font></td>
		<td width="966" 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" nowrap>&nbsp;</td>
		<td width="966" colspan="2" valign="top">



&nbsp;</td>
	</tr>
	<tr>
		<td valign="top" nowrap><font size="2">2.</font></td>
		<td width="966" 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" nowrap>&nbsp;</td>
		<td width="966" colspan="2" valign="top">



&nbsp;</td>
	</tr>
	<tr>
		<td valign="top" nowrap><font size="2">3.</font></td>
		<td width="966" 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" nowrap>&nbsp;</td>
		<td width="966" colspan="2" valign="top">



&nbsp;</td>
	</tr>
	<tr>
		<td valign="top" nowrap><font size="2">4.</font></td>
		<td width="966" colspan="2" valign="top">



<p style='text-align:justify;'><font size="2">The registrant's other certifying officer(s) and I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) [language omitted pursuant to SEC release 34-47986] for the
registrant and have:</font></p>



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="966" colspan="2" valign="top">



&nbsp;</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="60" valign="top">



<font size="2">a)</font></td>
		<td width="906" 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" nowrap>&nbsp;</td>
		<td width="60" valign="top">



&nbsp;</td>
		<td width="906" valign="top">



&nbsp;



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="60" valign="top">



<font size="2">b)</font></td>
		<td width="906" 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" nowrap>&nbsp;</td>
		<td width="60" valign="top">



&nbsp;</td>
		<td width="906" valign="top">



&nbsp;



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="60" valign="top">



<font size="2">c)</font></td>
		<td width="906" 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" nowrap>&nbsp;</td>
		<td width="60" valign="top">



&nbsp;</td>
		<td width="906" valign="top">



&nbsp;



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="60" valign="top">



<font size="2">d)</font></td>
		<td width="906" 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" nowrap>&nbsp;</td>
		<td width="60" valign="top">



&nbsp;</td>
		<td width="906" valign="top">



&nbsp;



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap><font size="2">5.</font></td>
		<td width="966" 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" nowrap>&nbsp;</td>
		<td width="966" colspan="2" valign="top">



&nbsp;



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="60" valign="top">



<font size="2">a)</font></td>
		<td width="906" 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" nowrap>&nbsp;</td>
		<td width="60" valign="top">



&nbsp;</td>
		<td width="906" valign="top">



&nbsp;



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="60" valign="top">



<font size="2">b)</font></td>
		<td width="906" valign="top">



<p style='text-align:justify;'><font size="2">Any fraud, whether or not
material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.</font></p>





		</td>
	</tr>
</table>
<p><font size="2">&nbsp;</font></p>
<table border="0" style="border-collapse: collapse" width="100%" id="table2">
	<tr>
		<td width="330" valign="top"><font size="2">Date: May 15, 2007</font></td>
		<td valign="top"><font size="2"> <u>/s/&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
		MARK MURPHY</u></font><u><font size="2"> </font></u><font size="2"><br>
&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;
		Chief Executive Officer</font></td>
	</tr>
</table>
<p>&nbsp;</p>
<p>&nbsp;</p>










</body>

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

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

<body>










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

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



<table border="0" style="border-collapse: collapse" width="100%" id="table2">
	<tr>
		<td valign="top" nowrap><font size="2">1.</font></td>
		<td width="966" 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" nowrap>&nbsp;</td>
		<td width="966" colspan="2" valign="top">



&nbsp;</td>
	</tr>
	<tr>
		<td valign="top" nowrap><font size="2">2.</font></td>
		<td width="966" 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" nowrap>&nbsp;</td>
		<td width="966" colspan="2" valign="top">



&nbsp;</td>
	</tr>
	<tr>
		<td valign="top" nowrap><font size="2">3.</font></td>
		<td width="966" 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" nowrap>&nbsp;</td>
		<td width="966" colspan="2" valign="top">



&nbsp;</td>
	</tr>
	<tr>
		<td valign="top" nowrap><font size="2">4.</font></td>
		<td width="966" colspan="2" valign="top">



<p style='text-align:justify;'><font size="2">The registrant's other certifying officer(s) and I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) [language omitted pursuant to SEC release 34-47986] for the
registrant and have:</font></p>



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="966" colspan="2" valign="top">



&nbsp;</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="60" valign="top">



<font size="2">a)</font></td>
		<td width="906" 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" nowrap>&nbsp;</td>
		<td width="60" valign="top">



&nbsp;</td>
		<td width="906" valign="top">



&nbsp;



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="60" valign="top">



<font size="2">b)</font></td>
		<td width="906" 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" nowrap>&nbsp;</td>
		<td width="60" valign="top">



&nbsp;</td>
		<td width="906" valign="top">



&nbsp;



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="60" valign="top">



<font size="2">c)</font></td>
		<td width="906" 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" nowrap>&nbsp;</td>
		<td width="60" valign="top">



&nbsp;</td>
		<td width="906" valign="top">



&nbsp;



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="60" valign="top">



<font size="2">d)</font></td>
		<td width="906" 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" nowrap>&nbsp;</td>
		<td width="60" valign="top">



&nbsp;</td>
		<td width="906" valign="top">



&nbsp;



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap><font size="2">5.</font></td>
		<td width="966" 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" nowrap>&nbsp;</td>
		<td width="966" colspan="2" valign="top">



&nbsp;



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="60" valign="top">



<font size="2">a)</font></td>
		<td width="906" 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" nowrap>&nbsp;</td>
		<td width="60" valign="top">



&nbsp;</td>
		<td width="906" valign="top">



&nbsp;



		</td>
	</tr>
	<tr>
		<td valign="top" nowrap>&nbsp;</td>
		<td width="60" valign="top">



<font size="2">b)</font></td>
		<td width="906" valign="top">



<p style='text-align:justify;'><font size="2">Any fraud, whether or not
material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.</font></p>





		</td>
	</tr>
</table>
<p>&nbsp;</p>
<table border="0" style="border-collapse: collapse" width="100%" id="table3" cellpadding="0">
	<tr>
		<td><font size="2">Date: May 15, 2007</font></td>
		<td><font size="2"><u>/s/&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
		JEFFREY J. RITCHEY</u> _______</font></td>
	</tr>
	<tr>
		<td>&nbsp;</td>
		<td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
		Jeffrey J. Ritchey</font></td>
	</tr>
	<tr>
		<td>&nbsp;</td>
		<td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
		Chief Financial Officer</font></td>
	</tr>
</table>
<p><font size="2">&nbsp; </font></p>












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

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

<body>












<p><b><font size="2">EXHIBIT 32</font></b></p>





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

<p align=center style='margin-top:0in;text-align:center'><b><font size="2">Certifications
of Chief Executive Officer and Chief Financial Officer</font></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 March 31, 2007 (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>

<ol style="font-size: 10pt">
	<li>
	<p style='text-align:justify'><font size="2">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></li>
	<li>
	<p style='text-align:justify'><font size="2">The information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.</font></p></li>
</ol>
<table border="0" style="border-collapse: collapse" width="100%" id="table2">
	<tr>
		<td valign="top"><font size="2">Dated: May 15, 2007</font></td>
		<td width="773" valign="top"><font size="2">By:</font><u><font size="2">
/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>
</font> </u><font size="2">&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><p>&nbsp;</p></td>
	</tr>
	<tr>
		<td valign="top"><font size="2">Dated: May 15, 2007 </font></td>
		<td width="773" valign="top"><font size="2">By:</font><u><font size="2">
/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>
</font> </u><font size="2">&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></p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p><u><font size="2">&nbsp;</font></u></p>







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