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<SEC-DOCUMENT>0000897101-06-001696.txt : 20060814
<SEC-HEADER>0000897101-06-001696.hdr.sgml : 20060814
<ACCEPTANCE-DATETIME>20060814125046
ACCESSION NUMBER:		0000897101-06-001696
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20060630
FILED AS OF DATE:		20060814
DATE AS OF CHANGE:		20060814

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ELECTRO SENSORS INC
		CENTRAL INDEX KEY:			0000351789
		STANDARD INDUSTRIAL CLASSIFICATION:	INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823]
		IRS NUMBER:				410943459
		STATE OF INCORPORATION:			MN
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-09587
		FILM NUMBER:		061028376

	BUSINESS ADDRESS:	
		STREET 1:		6111 BLUE CIRCLE DR
		CITY:			MINNETONKA
		STATE:			MN
		ZIP:			55343-9108
		BUSINESS PHONE:		9529300100

	MAIL ADDRESS:	
		STREET 1:		6111 BLUE CIRCLE DR
		CITY:			MINNETONKA
		STATE:			MN
		ZIP:			55343
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>electro063188_10qsb.htm
<DESCRIPTION>QUARTERLY REPORT FOR PERIOD ENDED JUNE 30, 2006
<TEXT>
<HTML>
<HEAD>
<TITLE>Electro-Sensors, Inc. Form 10-QSB for the period ended June 30, 2006 </TITLE>
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<BODY bgcolor="#ffffff" style='font-family:"Times New Roman"'>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#toc">Table of Contents </A></FONT></P>

<DIV STYLE="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV STYLE="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>
<BR>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=4>UNITED STATES</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=4>SECURITIES AND EXCHANGE COMMISSION</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2><b>Washington, DC 20549</b></font></p>
<BR>

<HR WIDTH="20%" COLOR="Black">
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=6><b>Form 10-QSB</b> </FONT></P>
<HR WIDTH="20%" COLOR="Black">


<P ALIGN=CENTER><FONT face="Wingdings">x </FONT>&nbsp;<FONT FACE="Times New Roman, Times, Serif" SIZE="3"><B>QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
<BR>SECURITIES EXCHANGE ACT OF 1934</B> </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>For the quarterly period ended June 30, 2006 </FONT></H1>

<P ALIGN=CENTER><font face=Wingdings>o </font>&nbsp;<b><font size=3>TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT</font></B></P>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>FOR THE TRANSITION PERIOD FROM&nbsp;_____________&nbsp;TO&nbsp; _____________</FONT></H1>


<P ALIGN="Center"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Commission File Number 0-9587</B> </FONT> </P>


<HR WIDTH="20%" COLOR="Black">

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:center;'><B><font SIZE=6>ELECTRO-SENSORS, INC.</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><FONT SIZE="2">(Exact name of small business issuer as specified in its charter) </FONT></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>


<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="50%" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b>Minnesota</b></p>  </td>
        <td width="19" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p>  </td>
        <td width="50%" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b>41-0943459</b></p>  </td> </tr>
    <tr >
        <td  valign=top >
<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">(State or other jurisdiction of incorporation or<br> organization) </FONT></p> </td>
        <td width="19" valign=bottom >
<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">&nbsp; </FONT></p> </td>
        <td  valign=top >
<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">(IRS Employer Identification No.) </FONT></p> </td> </tr>
    <tr >
        <td  valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>

</table>


<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b>6111 Blue Circle Drive</b><br> <b>Minnetonka, Minnesota 55343-9108</b></p>

<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'>(Address of principal executive offices)</p>
<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=3>(952) 930-0100</font></b></p>
<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'>(Issuer&#146;s telephone number)</p>
<BR>

<HR WIDTH="20%" COLOR="Black">

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'>Check whether the issuer (1) filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 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 90 days.</p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=3>Yes </font><font face=Wingdings>x</font><font size=3>&nbsp;&nbsp;&nbsp;No&nbsp;</font><font face=Wingdings>o</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'>&nbsp;</p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=3>Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.
<BR>Yes </font><font face=Wingdings>o</font><font size=3>&nbsp;&nbsp;&nbsp;No&nbsp;</font><font face=Wingdings>x</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'>The number of shares outstanding of the registrant&#146;s Common Stock, $0.10 par value, on August 14, 2006 was 3,345,639.</p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'>
<font size=3>Transitional Small Business Disclosure Format (check one):  Yes </font><font face=Wingdings>o</font><font size=3>&nbsp;&nbsp;&nbsp;No&nbsp;</font><font face=Wingdings>x</font></p>
<BR>



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<DIV STYLE="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV STYLE="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>

<BR>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2><A NAME="toc"></A>ELECTRO-SENSORS, INC.</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><b><font size=2>Form 10-QSB</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><b><font size=2>For the Period Ended June 30, 2006</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>TABLE OF CONTENTS</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>



<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART I &#150; FINANCIAL INFORMATION </FONT></H1>

<p><font size=2>Item 1.&nbsp;&nbsp;&nbsp;<A HREF="#financial">Financial Statements:</A> </FONT></P>

<p style=' text-indent:12pt; margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2><A HREF="#financial">Condensed Consolidated Balance Sheet &#150; As of June 30, 2006</A> </FONT></P>
<p style=' text-indent:12pt; margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2><A HREF="#operations">Condensed Consolidated Statements of Operations &#150; For the Three and Six Month Periods Ended June 30, 2006 and June 30, 2005</A> </FONT></P>
<p style=' text-indent:12pt; margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2><A HREF="#flows">Condensed Consolidated Statements of Cash Flows &#150; For the Six Month Periods Ended June 30, 2006 and June 30, 2005</A> </FONT></P>
<p style=' text-indent:12pt; margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2><A HREF="#notes">Notes to Condensed Consolidated Financial Statements</A> </FONT></P>
<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>
<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Item 2.&nbsp;&nbsp;&nbsp;<A HREF="#managements">Management&#146;s Discussion and Analysis or Plan of Operation</A> </FONT></P>
<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Item 3.&nbsp;&nbsp;&nbsp;<A HREF="#controls">Controls and Procedures</A> </FONT></P>

<H1><font size=2>PART II &#150; OTHER INFORMATION </FONT></H1>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Item 1.&nbsp;&nbsp;&nbsp;<A HREF="#legal">Legal Proceedings </A></FONT></P>
<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Item 2.&nbsp;&nbsp;&nbsp;<A HREF="#unregistered">Unregistered Sales of Equity Securities and Use of Proceeds </A></FONT></P>
<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Item 3.&nbsp;&nbsp;&nbsp;<A HREF="#defaults">Defaults Upon Senior Securities</A> </FONT></P>
<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Item 4.&nbsp;&nbsp;&nbsp;<A HREF="#submission">Submission of Matters to a Vote of Security Holders </A></FONT></P>
<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Item 5.&nbsp;&nbsp;&nbsp;<A HREF="#other">Other Information</A> </FONT></P>
<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Item 6.&nbsp;&nbsp;&nbsp;<A HREF="#exhibits">Exhibits </A></FONT></P>
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#signatures">SIGNATURES</A> </FONT></H1>
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#index">EXHIBITS </A></FONT></H1>



<BR>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#toc">Table of Contents </A></FONT></P>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=3><A NAME="financial"></A>PART I.&nbsp;&nbsp;&nbsp;FINANCIAL INFORMATION</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=3>Item 1.&nbsp;&nbsp;&nbsp;Financial Statements</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>ELECTRO-SENSORS, INC. AND SUBSIDIARIES</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>CONDENSED CONSOLIDATED BALANCE SHEET</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>


<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="80%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=1>June 30,</font></b><br> <b><font size=1>2006</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; padding:0in 0in .7pt 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=1>(unaudited)</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><B><font SIZE=2>ASSETS</font></B></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><B><font SIZE=2>CURRENT ASSETS</font></B></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Cash and Cash Equivalents</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>$</font></b></p> </td>
        <TD WIDTH="13%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>4,992,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Marketable Securities</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>5,377,000</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Trade Receivables,</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>682,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:30.0pt;text-indent:-5.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>less Allowance for Doubtful Accounts of $9,000</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Inventories</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>914,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:1.0pt;margin-bottom: 0in'><font size=2>Other Current Assets</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>53,000</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><b><font size=2>Total Current Assets</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom" STYLE=" border-bottom:solid black 1.0pt;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>12,018,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>PROPERTY AND EQUIPMENT, net</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>1,305,000</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom style='padding:0in 0in .7pt 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="1%" valign=bottom style='border-top:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="13%" valign=bottom style='border-top: solid black 1.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom style='padding:0in 0in .7pt 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:1.5pt;margin-bottom: 0in'><B><font SIZE=2>TOTAL ASSETS</font></B></p> </td>
        <TD WIDTH="2%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom" STYLE="border-bottom: double black 2.25pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>$</font></b></p> </td>
        <TD WIDTH="13%" VALIGN="bottom" STYLE="border-bottom: double black 2.25pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>13,323,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><B><font SIZE=2>CURRENT LIABILITIES</font></B></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="13%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Accounts Payable</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>$</font></b></p> </td>
        <td width="13%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>134,000</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Accrued Expenses</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>203,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Deferred Revenue</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>62,000</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Accrued Income Tax</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>404,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:1.0pt;margin-bottom: 0in'><font size=2>Deferred Income Tax</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>1,950,000</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:1.0pt;margin-bottom: 0in'><b><font size=2>Total Current Liabilities</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom" STYLE=" border-bottom:solid black 1.0pt;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>2,753,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><B><font SIZE=2>COMMITMENTS AND CONTINGENCIES</font></B></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>STOCKHOLDERS&#146; EQUITY</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Common Stock par value $0.10 per share; Authorized 10,000,000 shares; </font></p>
<p style='margin-left:30.0pt;text-indent:4.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Issued and Outstanding 3,344,852</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>334,000</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Additional Paid-in Capital</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>1,436,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Retained Earnings</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>5,577,000</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:30.0pt;text-indent:-10.0pt;text-align:left;margin-top:1.0pt;margin-bottom: 0in'><font size=2>Accumulated Other Comprehensive Income</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom" STYLE=" border-bottom:solid black 1.0pt;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>3,223,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:1.0pt;margin-bottom: 0in'><b><font size=2>Total Stockholders&#146; Equity</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt;  '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>10,570,000</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="80%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom style='padding:0in 0in .7pt 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="13%" valign=bottom style='border-top: solid black 1.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom style='padding:0in 0in .7pt 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="80%" VALIGN="top">
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:1.5pt;margin-bottom: 0in'><b><font size=2>TOTAL LIABILITIES AND STOCKHOLDERS&#146; EQUITY</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom" STYLE="border-bottom: double black 2.25pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>$</font></b></p> </td>
        <TD WIDTH="13%" VALIGN="bottom" STYLE="border-bottom: double black 2.25pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>13,323,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr></table>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>See accompanying notes to condensed consolidated financial statements</font></p>


<BR>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#toc">Table of Contents </A></FONT></P>



<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2><A NAME="operations"></A>ELECTRO-SENSORS, INC. AND SUBSIDIARIES</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><b><font size=2>(Unaudited)</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=5 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three Months Ended<BR>June 30,</FONT></TH><TH></TH>
     <TH COLSPAN=5 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six Months Ended<BR>June 30,</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=2 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT></TH><TH></TH>
     <TH COLSPAN=2 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT></TH><TH></TH>
     <TH COLSPAN=2 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT></TH><TH></TH>
     <TH COLSPAN=2 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD WIDTH=43% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Net Sales</B> </FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 1,427,000</B> </FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,147,000</FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 2,785,000</B> </FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,351,000</FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Cost of Goods Sold</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>504,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>452,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,019,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>898,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Gross Profit</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>923,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>695,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,766,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,453,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Operating Expenses:</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;Selling and Marketing </FONT> </TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp; </FONT> </TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp; </FONT> </TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>332,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>312,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>641,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>620,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;General and Administrative</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>349,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>259,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>680,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>587,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Research and Development</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>135,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>215,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>272,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>419,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Total Operating Expenses</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>816,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>786,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,593,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,626,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Operating Income (Loss)</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>107,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(91,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>173,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(173,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD colspan=15 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Non-operating Income (Expense):</B> </FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Gain on Sale of Investment Securities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>45,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>128,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,276,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>264,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Interest Income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>99,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>40,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>172,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>72,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Other Income/(Expense)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>5,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>9,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Equity in Losses of Equity Method Investee</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>0</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>0</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(11,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Total Non-operating Income</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>149,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>172,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,457,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>333,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Income before Income Taxes</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>256,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>81,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,630,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>160,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Federal and State Income Tax Provision</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>101,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>654,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>62,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Net Income</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 155,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     46,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 976,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     98,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top: double black; border-width:3px; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top: double black; border-width:3px; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top: double black; border-width:3px; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top: double black; border-width:3px; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD colspan=15 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Other Comprehensive Income/(Loss):</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Change in unrealized value of investments, net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;of income tax</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> (554,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (56,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> (6,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    440,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD colspan=15 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Reclassification adjustment for gains included</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;in Net Income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(35,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(85,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(769,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(162,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Total Comprehensive Income</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> (434,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (95,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 201,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    376,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD colspan=15 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Net Income per Share Data:</B> </FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Basic</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Net Income per Share</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 0.05</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       0.01</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 0.30</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       0.03</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Weighted Average Shares</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,306,602</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,227,128</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,274,793</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,223,406</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD colspan=15 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Diluted</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Net Income per Share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 0.05</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 0.29</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       0.03</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Weighted Average Shares</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,330,527</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,332,867</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,315,158</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,326,309</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Dividends paid per Share</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 1.04</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       0.04</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 1.08</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       0.08</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>See accompanying notes to condensed consolidated financial statements</font></p>

<BR>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- MARKER PAGE="sheet: 2; page: 2" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#toc">Table of Contents </A></FONT></P>



<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2><A NAME="flows"></A>ELECTRO-SENSORS, INC. AND SUBSIDIARIES</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><b><font size=2>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>(Unaudited)</font><b><font size=2> </font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=5 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six Months Ended<BR>June 30,</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=2 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT></TH><TH></TH>
     <TH COLSPAN=2 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD WIDTH=69% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Cash Flows from Operating Activities</B> </FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD>
        <TD WIDTH=7% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Net Income</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 976,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     98,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD colspan=9 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Adjustments to reconcile Net Income to net cash used in operating activities:</FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Depreciation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>39,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Realized gain on Sale of Marketable Securities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(1,276,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(264,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Equity in losses of Equity Method Investee</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>0</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD colspan=9 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;(Increase)/decrease in:</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade Receivables</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(119,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>63,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(120,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(28,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other Current Assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>18,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid Income Taxes</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>0</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>62,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts Payable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>77,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued Expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>48,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(42,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred Revenue</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>10,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued Income Taxes</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>342,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Net Cash Used in Operating Activities</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(5,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(44,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top: double black; border-width:3px; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top: double black; border-width:3px; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD colspan=9 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Cash Flows from Investing Activities</B> </FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Proceeds from Sale of Marketable Securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,291,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>278,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Purchase of Property and Equipment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>0</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(28,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Net Cash Provided by Investing Activities</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>1,291,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>250,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top: double black; border-width:3px; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top: double black; border-width:3px; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD colspan=9 ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Cash Flows from Financing Activities</B> </FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Proceeds from Issuance of Stock</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>253,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Dividends Paid</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(3,607,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(258,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Net Cash Used in Financing Activities</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(3,354,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(233,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top: double black; border-width:3px; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top: double black; border-width:3px; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Net Increase in Cash &amp; Cash Equivalents</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(2,068,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(27,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Cash &amp; Cash Equivalents, Beginning</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>7,060,000</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,464,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top:1px solid black; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Cash &amp; Cash Equivalents, Ending</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 4,992,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  6,437,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 STYLE="border-top: double black; border-width:3px; font-size:1pt">&nbsp;</TD><TD></TD>
     <TD COLSPAN=2 STYLE="border-top: double black; border-width:3px; font-size:1pt">&nbsp;</TD><TD></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Supplemental Schedule of Non-Cash Investing and Financing Activities</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net Change in Unrealized Gain/(Loss) on Investments</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 1,250,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (449,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR><TD>&nbsp;</TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash Paid for:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Income Taxes</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>$</B> </FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> 312,000</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     74,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>See accompanying notes to condensed consolidated financial statements</font></p>


<BR>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2> </font><B><font SIZE=2><A NAME="notes"></A>ELECTRO-SENSORS, INC. AND SUBSIDIARIES</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><b><font size=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><b><font size=2>(Unaudited)</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Note 1.&nbsp;&nbsp;&nbsp;Nature of Business</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The accompanying consolidated financial statements
include the accounts of Electro-Sensors, Inc. and its wholly owned subsidiaries, ESI Investment Company and Senstar Corporation.
Senstar Corporation does not have any business transactions. Intercompany accounts, transactions and earnings have been eliminated
in consolidation. The consolidated entity is referred to as &#147;the Company.&#148;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Electro-Sensors, Inc. operates two distinct
businesses. The first is the Controls Division, which manufactures and markets a complete line of speed monitoring and motor
control systems for industrial machinery. The Controls Division utilizes leading-edge technology to continuously improve its
products and make them easier to use. The Controls Division&#146;s goal is to manufacture the industry-preferred product for every
market served. These products are sold through an internal sales staff, manufacturer&#146;s representatives, and distributors to a
wide variety of manufacturers, OEM&#146;s and processors to monitor process machinery operations. The Controls Division markets
its products to a number of different industries located throughout the United States and abroad.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The second business is AutoData Systems (ADS). ADS
designs and markets a desktop software based system that reads hand printed characters, checkmarks and bar code information from
scanned or faxed forms. ADS products are designed to provide capabilities to automate data collection and are sold by internal
sales staff to end users, resellers and developers in the United States, Canada, Europe and Asia.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>ESI Investment Company (INV) owns marketable
securities. The Company&#146;s investments in marketable securities are subject to normal market risks. See Note 7 for additional
information regarding its investments.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Note 2.&nbsp;&nbsp;&nbsp;Basis of Presentation</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted in the United States of America for complete
financial statements. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>This report should be read together with the
Company&#146;s annual report on Form 10-KSB for the year ended December 31, 2005, including the audited financial statements and
footnotes therein.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>It is the opinion of management that the unaudited
condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary to fairly
state the financial position and results of operations for the three and six month periods ended June 30, 2006 and June 30, 2005.
The results of interim periods may not be indicative of results to be expected for the year.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Note 3.&nbsp;&nbsp;&nbsp;Use of Estimates</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates may be adjusted
as more information becomes available, and any adjustment could be significant. The impact of any change in estimates is included
in the determination of earnings in the period in which the change in estimate is identified. The impact of changes in estimates
could materially affect results.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Note 4.&nbsp;&nbsp;&nbsp;Revenue Recognition</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Revenue recognition of production monitoring
equipment:</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>In recognizing revenue, the Company applies the
provisions of the Securities and Exchange Commission Staff Accounting Bulletin&nbsp;(SAB) No. 101 (as amended by SAB No. 104),
Revenue Recognition. The Company recognizes revenue from the sale of its products when persuasive evidence of an arrangement
exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is reasonably
assured. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Software revenue recognition:</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Company recognizes revenue upon shipment of its
character recognition software. The product is sold to the end user and risk of loss is transferred, and the Company has no
continuing obligations, once its products are delivered to the shipper. To recognize revenue, it must also be probable that the
Company will collect the accounts receivable from its customers. In some situations, the Company receives advance payments from
its customers. Revenue associated with these advance payments is deferred until the product is shipped. ADS customers pay an
annual maintenance fee for software support, which is recognized as deferred revenue on the balance sheet and on a monthly basis,
it is recognized as revenue over the life of the contract.</font></p>

<BR>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Note 5.&nbsp;&nbsp;&nbsp;Stock-Based Compensation</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>In December 2004, the FASB issued Statement of
Financial Accounting Standards No.&nbsp;123 (revised 2004), &#147;Share-Based Payment,&#148; (&#147;SFAS 123R&#148;).
SFAS&nbsp;No.&nbsp;123R replaces SFAS&nbsp;No.&nbsp;123 &#147;Accounting for Stock-Based Compensation&#148; and supersedes
Accounting Principles Board Opinion No.&nbsp;25 (&#147;APB&nbsp;25&#148;), &#147;Accounting for Stock Issued to Employees&#148;.
SFAS&nbsp;No.&nbsp;123R requires the measurement and recognition of compensation expense for all share-based payment awards to
employees and directors based on estimated fair values, eliminating pro forma disclosure as an alternative. The cost is measured
based on the grant-date fair value of the equity or liability instruments issued. SFAS&nbsp;No.&nbsp;123R is effective for small
business filers as of the first interim or annual period that begins after December 31, 2005.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>Effective January 1, 2006, the Company adopted the
provisions of SFAS No. 123 (revised 2004), Share-Based Payment, (&#147;SFAS 123R&#148;) using the modified prospective transition
method. Under this transition method, compensation expense recognized during the six months ended June 30, 2006 equals
approximately $5,000 and reflects (a) compensation expense for all share-based awards granted prior to, but not yet vested, as of
June 30, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and
(b)&nbsp;compensation expense for all share-based awards granted subsequent to June 30, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS 123R. No share-based awards were granted by the Company during the first six
months of 2006. In accordance with the modified prospective transition method, the Company&#146;s Consolidated Financial
Statements for prior periods have not been restated to reflect the impact of SFAS 123R. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Company records compensation expense for employee
stock options based on the estimated fair value of the options on the date of grant using the Black Scholes model with the
assumptions included in the table below. The Company uses historical data among other factors to estimate the expected price
volatility, the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield
curve in effect at the time of grant for the estimated life of the option. At June 30, 2006, we had one stock-based employee
compensation plan. During the six months ended June 30, 2006, we cancelled 150,000 common share options under this plan and did
not issue any common share options. The cancelled options were voluntarily forfeited by Mr.&nbsp;Slye in February 2006, for no
consideration from the Company. During the three months ended June 30, 2006, 27 employee and director options were exercised to
purchase 91,920 shares of common stock. During the six months ended June 30, 2005, we did not issue or cancel any additional
common share options. The following table depicts the average of the assumptions that were used to estimate the fair value of
options that remain outstanding at June 30, 2006.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<table border="0" cellspacing=0 cellpadding=0 width="50%" align=center>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="19%" VALIGN="top">
            <p style='margin-left:0pt;text-indent:2.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p>
<p style='margin-left:.25in;text-indent:-.25in;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Dividend yield</font></p> </td>
        <TD WIDTH="10%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>0.00%</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="19%" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Expected volatility</font></p> </td>
        <td width="10%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>52.19%</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="19%" VALIGN="top">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Risk free interest rate</font></p> </td>
        <TD WIDTH="10%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>3.00%</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="19%" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Expected lives</font></p> </td>
        <td width="10%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>10 years</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
</table>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Prior to January 1, 2006, the Company accounted for
the grants of options and restricted shares using the intrinsic value method of Accounting Principles Board Opinion No. 25,
&#147;Accounting for Stock Issued to Employees&#148; and related interpretations. Had compensation cost for share-based awards
been determined consistent with SFAS No.&nbsp;123R, the net income and earnings per share would have been adjusted to the
following pro forma amounts for the three and six month periods ended June 30, 2005: </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<table border="0" cellspacing=0 cellpadding=0 width="70%" style='border-collapse:collapse' align=CENTER>
     <tr >
        <td width="55%" valign=bottom >
            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="3" valign=bottom >
            <p align=center style='margin:0in;margin-bottom:.0001pt;text-align:center'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom  STYLE="border-bottom:1px solid black; font-size:1pt">
            <p align=center style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font size=1>Three Months<BR>Ended<BR>2005</font></b></p> </td>
        <td  colspan="2" valign=bottom >
            <p align=center style='margin:0in;margin-bottom:.0001pt;text-align:center'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="5" valign=bottom  STYLE="border-bottom:1px solid black; font-size:1pt">
            <p align=center style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font size=1>Six Months<BR>Ended<BR>2005</font></b></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="55%" VALIGN="top">
            <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:10.0pt; text-indent:-10.0pt'><font size=2>Net income (loss):</font></p> </td>
        <TD COLSPAN="3" VALIGN="bottom">
            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>&nbsp;</font></p> </td>
        <TD COLSPAN="5" VALIGN="bottom">
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="55%" valign=top >
            <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:20.0pt; text-indent:-10.0pt'><font size=2>As reported</font></p> </td>
        <td  colspan="3" valign=bottom >
            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>$</font></p> </td>
        <td width="13%" valign=bottom >
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>46,000</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>$</font></p> </td>
        <td  colspan="3" valign=bottom >
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>98,000</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="55%" VALIGN="top">
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 20.0pt;text-indent:-10.0pt'><font size=2>Pro forma</font></p> </td>
        <TD COLSPAN="3" VALIGN="bottom">
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom" STYLE="border-bottom: solid black 1.0pt;">
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>$</font></p> </td>
        <TD WIDTH="13%" VALIGN="bottom" STYLE="border-bottom: solid black 1.0pt;">
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>32,000</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom" STYLE=" border-bottom:solid black 1.0pt;">
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>$</font></p> </td>
        <TD COLSPAN="3" VALIGN="bottom" STYLE=" border-bottom:solid black 1.0pt;">
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>70,000</font></p> </td> </tr>
    <tr >
        <td width="55%" valign=top >
            <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:10.0pt; text-indent:-10.0pt'><font size=2>Basic net income (loss) per common share:</font></p> </td>
        <td  colspan="3" valign=bottom >
            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>&nbsp;</font></p> </td>
        <td  colspan="5" valign=bottom >
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="55%" VALIGN="top">
            <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:20.0pt; text-indent:-10.0pt'><font size=2>As reported</font></p> </td>
        <TD COLSPAN="3" VALIGN="bottom">
            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>0.01</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="5" VALIGN="bottom">
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>0.03</font></p> </td> </tr>
    <tr >
        <td width="55%" valign=top >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 20.0pt;text-indent:-10.0pt'><font size=2>Pro forma</font></p> </td>
        <td  colspan="3" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>0.01</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="5" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>0.02</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="55%" VALIGN="top">
            <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:10.0pt; text-indent:-10.0pt'><font size=2>Diluted net income (loss) per common share:</font></p> </td>
        <TD COLSPAN="3" VALIGN="bottom">
            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>&nbsp;</font></p> </td>
        <TD COLSPAN="5" VALIGN="bottom">
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="55%" valign=top >
            <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:20.0pt; text-indent:-10.0pt'><font size=2>As reported</font></p> </td>
        <td  colspan="3" valign=bottom >
            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>0.01</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="5" valign=bottom >
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>0.03</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="55%" VALIGN="top">
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 20.0pt;text-indent:-10.0pt'><font size=2>Pro forma</font></p> </td>
        <TD COLSPAN="3" VALIGN="bottom">
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom" STYLE=" border-bottom:solid black 1.0pt;">
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>0.01</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="5" VALIGN="bottom" STYLE=" border-bottom:solid black 1.0pt;">
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>0.02</font></p> </td> </tr>
    <tr >
        <td width="55%" valign=top >
            <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:10.0pt; text-indent:-10.0pt'><font size=2>Stock based compensation:</font></p> </td>
        <td  colspan="3" valign=bottom >
            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>&nbsp;</font></p> </td>
        <td  colspan="5" valign=bottom >
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="55%" VALIGN="top">
            <p style='margin-top:0in;margin-right:0in;margin-bottom:0in;margin-left:20.0pt; text-indent:-10.0pt'><font size=2>As reported</font></p> </td>
        <TD COLSPAN="3" VALIGN="bottom">
            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>0</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>&nbsp;</font></p> </td>
        <TD COLSPAN="5" VALIGN="bottom">
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>0</font></p> </td> </tr>
    <tr >
        <td width="55%" valign=top >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 20.0pt;text-indent:-10.0pt'><font size=2>Pro forma</font></p> </td>
        <td  colspan="3" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="3%" valign=bottom style='border-bottom: solid black 1.0pt; '>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>$</font></p> </td>
        <td width="13%" valign=bottom style='border-bottom: solid black 1.0pt; '>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>14,000</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>$</font></p> </td>
        <td  colspan="3" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; '><font size=2>28,000</font></p> </td> </tr>
    <tr>
        <td width="248" ></td>
        <td width="0" ></td>
        <td width="1" ></td>
        <td width="0" ></td>
        <td width="6" ></td>
        <td width="53" ></td>
        <td width="18" ></td>
        <td width="47" ></td>
        <td width="2" ></td>
        <td width="8" ></td>
        <td width="82" ></td>
        <td width="1" ></td>
        <td width="0" ></td> </tr> </table>


<BR>
<HR SIZE=3 COLOR=GRAY NOSHADE>
<!-- MARKER PAGE="sheet: 2; page: 2" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#toc">Table of Contents </A></FONT></P>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Note 6.&nbsp;&nbsp;&nbsp;Net Income Per Share</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Company&#146;s basic net income per share amounts
have been computed by dividing net income by the weighted average number of outstanding common shares. The Company&#146;s diluted
net income per share is computed by dividing net income by the weighted average number of outstanding common shares and common
share equivalents relating to stock options and warrants, when dilutive. For the three months ended June 30, 2006, 56,804 shares
of common stock equivalents were included in the computation of diluted net income per share. For the six months ended June 30,
2006, 40,365 shares of common stock equivalents were included in the computation of diluted net income per share. For the three
months ended June 30, 2005, 105,739 shares of common stock equivalents were included in the computation of diluted net income per
share. For the six months ended June 30, 2005, 102,903 shares of common stock equivalents were included in the computation of
diluted net income per share. There were no options to purchase shares excluded from the computation of common share equivalents
because their exercise prices were greater than the average market price of the common shares for the period.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Note 7.&nbsp;&nbsp;&nbsp;Investments</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>INV&#146;s investments consist of equity securities,
primarily common stocks, government debt securities and money market funds. The estimated fair value of publicly traded equity
securities (other than those accounted for based upon the equity method of accounting) is based on quoted market prices, and
therefore subject to the inherent risk of market fluctuations. Shares of common stock for which there is no readily determinable
value (i.e., no quoted market price) are accounted for on a historical cost method (unless accounted for based upon the equity
method of accounting). Management determines the appropriate classification of securities at the date individual investments are
acquired, and evaluates the appropriateness of such classification at each balance sheet date.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Since the Company generally does not buy investments
in anticipation of short-term fluctuations in market prices, investments in equity securities are classified as available-for-sale
(unless accounted for on the equity method of accounting). Available-for-sale securities with readily determinable values are
stated at fair value, and unrealized holding gains and losses, net of the related deferred tax effect, are reported as separate
component of stockholders&#146; equity.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Realized gains and losses on securities, including
losses from declines in value of specific securities determined by management to be other-than-temporary (unless accounted for on
the equity method of accounting), are included in income in the period realized.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Prior to February 15, 2006, the Company&#146;s
significant investment in equity securities consisted of 569,615 shares of common stock of August Technology Corporation
(&#147;August&#148;), which had an approximate cost of $57,000. Rudolph Technologies, Inc. (&#147;Rudolph&#148;) acquired August
on February 15, 2006. As a result of Rudolph&#146;s acquisition of August, the Company received 347,224 shares of Rudolph common
stock and $1,015,891 in cash. As a result, at June 30, 2006, the Company&#146;s significant investment in equity securities is
343,767 shares of Rudolph. As of June 30, 2006, the aggregate value of the Company&#146;s Rudolph shares as reported on the Nasdaq
Stock Exchange was approximately $4,985,000 with an approximate cost of $45,000. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Investment Reported on Equity Method:</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>At June 30, 2006, the Company owned 551,759 shares of
PPT, which is approximately 14.5% of PPT&#146;s outstanding common stock. The fair value of its holdings based on the quoted
market price at June 30, 2006 was approximately $306,000 with an approximate cost of $2,434,000.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Since the Company owns approximately 14.5% of
PPT&#146;s outstanding stock, and the Company&#146;s Secretary, Peter R Peterson, owns approximately 38.6% of PPT&#146;s
outstanding stock, it has been determined that the Company has &#147;significant influence&#148; over the operations of PPT, and
as a result its ownership interest should be reported using the equity method of accounting for investments.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Under the equity method of accounting, the
Company&#146;s proportionate share of PPT net income or loss is included in the Company&#146;s net income (loss) with a
corresponding increase or decrease in the carrying value of its investment. Losses in excess of invested amounts are not
recognized in the financial statements, but rather are suspended and applied against future equity in earnings for the investee
until exhausted. At June 30, 2006, the Company had approximately $1,206,000 in suspended losses from its investment in PPT that
will be used to offset future recognition of equity method earnings from the investment.</font></p>

<BR>
<HR SIZE=3 COLOR=GRAY NOSHADE>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#toc">Table of Contents </A></FONT></P>



<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><b><font size=2>Note 8.&nbsp;&nbsp;&nbsp;Segment Information</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Company has three reportable operating segments
based on the nature of its product lines: Production Monitoring, Character Recognition, and Investments. The Controls Division
manufactures and markets a complete line of production monitoring equipment, in particular speed monitoring and motor control
systems for industrial machinery. ADS designs and markets a desktop software-based character recognition system that reads hand
printed characters, checkmarks, and bar code information from scanned or faxed forms. Sales of this system include software and
can include hardware. INV holds investments in marketable and non-marketable securities.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The accounting policies of the segments are the same
as those described in Note 1. In evaluating segment performance, management focuses on sales and income before taxes. The Company
has no inter-segment sales.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The following is financial information relating to the
continuing operating segments: </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<table border="0" cellspacing=0 cellpadding=0 width="97%" style='border-collapse:collapse'>
    <tr >
        <td width="45%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="5" valign=bottom  STYLE="border-bottom:1px solid black; font-size:1pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=1>Three Months Ended</font></b><br> <b><font size=1>June</font></b><font size=1>&nbsp;</font><b><font size=1>30,</font></b></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="5" valign=bottom STYLE="border-bottom:1px solid black; font-size:1pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=1>Six Months Ended</font></b><br> <b><font size=1>June</font></b><font size=1>&nbsp;</font><b><font size=1>30,</font></b></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="45%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom  STYLE="border-bottom:1px solid black; font-size:1pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=1>2006</font></b></p> </td>
        <td width="3%" valign=bottom style='border-top:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom  STYLE="border-bottom:1px solid black; font-size:1pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=1>2005</font></b></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom  STYLE="border-bottom:1px solid black; font-size:1pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=1>2006</font></b></p> </td>
        <td width="2%" valign=bottom style='border-top:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom  STYLE="border-bottom:1px solid black; font-size:1pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=1>2005</font></b></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="45%" VALIGN="top">
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>External sales</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="45%" valign=top >
            <p style='margin-left:20.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Production monitoring</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>$</font></b></p> </td>
        <td width="8%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>1,325,000</font></b></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$</font></p> </td>
        <td width="8%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>1,007,000</font></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>$</font></b></p> </td>
        <td width="8%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>2,499,000</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$</font></p> </td>
        <td width="8%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>2,083,000</font></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="45%" VALIGN="top">
            <p style='margin-left:20.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Character recognition</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>102,000</font></b></p> </td>
        <TD WIDTH="3%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>140,000</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>286,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>268,000</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="45%" valign=top >
            <p style='margin-left:20.0pt;text-indent:-10.0pt;text-align:left;margin-top:1.0pt;margin-bottom: 0in'><font size=2>Investments</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>0</font></b></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>0</font></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>0</font></b></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>0</font></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="45%" VALIGN="top">
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:1.0pt;margin-bottom: 0in'><b><font size=2>Total</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom" STYLE="border-bottom: solid black 1.0pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>$</font></b></p> </td>
        <TD WIDTH="8%" VALIGN="bottom" STYLE="border-top:solid black 1.0pt; border-left:none;border-bottom:solid black 1.0pt;border-right:none;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>1,427,000</font></b></p> </td>
        <TD WIDTH="3%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom" STYLE="border-bottom: solid black 1.0pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$</font></p> </td>
        <TD WIDTH="8%" VALIGN="bottom" STYLE="border-top:solid black 1.0pt; border-left:none;border-bottom:solid black 1.0pt;border-right:none;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>1,147,000</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom" STYLE="border-bottom: solid black 1.0pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>$</font></b></p> </td>
        <TD WIDTH="8%" VALIGN="bottom" STYLE="border-top:solid black 1.0pt; border-left:none;border-bottom:solid black 1.0pt;border-right:none;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>2,785,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom" STYLE="border-bottom: solid black 1.0pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$</font></p> </td>
        <TD WIDTH="8%" VALIGN="bottom" STYLE="border-top:solid black 1.0pt; border-left:none;border-bottom:solid black 1.0pt;border-right:none;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>2,351,000</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="45%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="45%" VALIGN="top">
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>Net Income/(Loss) before taxes</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="45%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-3.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Production monitoring</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>$</font></b></p> </td>
        <td width="8%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>304,000</font></b></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$</font></p> </td>
        <td width="8%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>65,000</font></p> </td>
        <td width="3%" valign=bottom style='padding:0in 0in .7pt 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>$</font></b></p> </td>
        <td width="8%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>420,000</font></b></p> </td>
        <td width="2%" valign=bottom style='padding:0in 0in .7pt 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="1%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$</font></p> </td>
        <td width="8%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>150,000</font></p> </td>
        <td width="3%" valign=bottom style='padding:0in 0in .7pt 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="45%" VALIGN="top">
            <p style='margin-left:10.0pt;text-indent:-2.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Character recognition</font></p> </td>
        <TD WIDTH="2%" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>(22,000</font></b></p> </td>
        <TD WIDTH="3%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>)</font></b></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>(24,000</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>)</font></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>(8,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>)</font></b></p> </td>
        <TD COLSPAN="2" VALIGN="bottom">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>(60,000</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>)</font></p> </td> </tr>
    <tr >
        <td width="45%" valign=top >
            <p style='margin-left:10.0pt;text-indent:-3.25pt;text-align:left;margin-top:1.0pt;margin-bottom: 0in'><font size=2>Investments</font></p> </td>
        <td width="2%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>(26,000</font></b></p> </td>
        <td width="3%" valign=bottom style='padding:0in 0in .7pt 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><b><font size=2>)</font></b></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>40,000</font></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>1,218,000</font></b></p> </td>
        <td width="2%" valign=bottom style='padding:0in 0in .7pt 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom style=' border-bottom:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>70,000</font></p> </td>
        <td width="3%" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <TR BGCOLOR="#d6f3e8">
        <TD WIDTH="45%" VALIGN="top">
            <p style='margin-left:10.0pt;text-indent:-10.0pt;text-align:left;margin-top:1.5pt;margin-bottom: 0in'><b><font size=2>Total</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom" STYLE="border-bottom: double black 2.25pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>$</font></b></p> </td>
        <TD WIDTH="8%" VALIGN="bottom" STYLE="border-top:solid black 1.0pt; border-left:none;border-bottom:double black 2.25pt;border-right:none;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>256,000</font></b></p> </td>
        <TD WIDTH="3%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom" STYLE="border-bottom: double black 2.25pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$</font></p> </td>
        <TD WIDTH="8%" VALIGN="bottom" STYLE="border-top:solid black 1.0pt; border-left:none;border-bottom:double black 2.25pt;border-right:none;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>81,000</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom" STYLE="border-bottom: double black 2.25pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>$</font></b></p> </td>
        <TD WIDTH="8%" VALIGN="bottom" STYLE="border-top:solid black 1.0pt; border-left:none;border-bottom:double black 2.25pt;border-right:none;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>1,630,000</font></b></p> </td>
        <TD WIDTH="2%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="1%" VALIGN="bottom" STYLE="border-bottom: double black 2.25pt">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$</font></p> </td>
        <TD WIDTH="8%" VALIGN="bottom" STYLE="border-top:solid black 1.0pt; border-left:none;border-bottom:double black 2.25pt;border-right:none;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>160,000</font></p> </td>
        <TD WIDTH="3%" VALIGN="bottom" STYLE="padding:0in 0in .7pt 0in">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr></table>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Certain expenses related to the conduct of our
investment activities are included in general and administrative expenses in the accompanying consolidated statements of
operations, but have been allocated to net income (loss) from our Investments segment in the above table.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Recent accounting standards:  </font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Management has reviewed recently issued, but not yet
effective, accounting pronouncements and does not expect the implementation of these pronouncements to have a significant effect
on the Company&#146;s financial statements.</font></p>


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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=3><A NAME="managements"></A>Item 2.&nbsp;&nbsp;&nbsp;Management&#146;s Discussion and Analysis or Plan of Operation</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><B><font SIZE=2>FORWARD-LOOKING STATEMENTS</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>This Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company&#146;s expectations, beliefs, intentions or strategies regarding the future. Forward-looking
statements include, but are not limited to, statements regarding the extent and timing of future revenues and expenses and
customer demand, the market value of our investment securities, future financial condition and availability of capital resources,
changes in worldwide general economic conditions, cyclical capital spending by customers, the Company&#146;s ability to keep pace
with technological developments and evolving industry standards, worldwide competition, and the Company&#146;s ability to protect
its existing intellectual property from challenges from third parties and other factors. Any statement that is not based solely
upon historical facts, including strategies for the future and the outcome of events that have not yet occurred, is considered a
forward-looking statement.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>All forward-looking statements in this document are
based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. It is important to note that the Company&#146;s actual results could differ materially from those in
such forward-looking statements. The forward-looking statements of the Company are subject to risks and uncertainties. Some of the
factors that could cause future results to differ materially from the Company&#146;s recent results or those projected in the
forward-looking statements are detailed in the Company&#146;s Annual Report on Form 10-KSB for the year ended December&nbsp;31,
2005, filed with the Securities and Exchange Commission.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><B><font SIZE=2>CRITICAL ACCOUNTING ESTIMATES</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Management uses estimates and assumptions in preparing
our financial statements in accordance with generally accepted accounting principles. These estimates affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. We do not
believe that any of the significant accounting estimates described in the notes to the financial statements are critical at this
time. A more in-depth description of our accounting estimates can be found in the interim financial statements included in this
report and in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><B><font SIZE=2>RESULTS OF OPERATIONS</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><u><i><b><font size=2>Net Sales</font></b></i></u></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Net sales for the three month period ended June 30,
2006 increased $280,000 or 24.4% when compared to net sales for the same period in 2005. Net sales for the six month period ended
June 30, 2006 increased $434,000 or 18.5% when compared to net sales for the same period in 2006.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>For the three months ended June 30, 2006 compared to
the same period in 2005, the Controls Division contributed an increase in net sales of $318,000 or 31.6%, offset by a decrease in
ADS net sales of $38,000 or 27.1%.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>For the six months ended June 30, 2006 compared to the
same period in 2005, the Controls Division contributed an increase in net sales of $416,000 or 20.0%, ADS also contributes an
increase in net sales of $18,000 or 6.7%.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Controls Division has experienced an increase in
net sales for the second quarter and first half of 2006. These sales are for new plant installations, facility expansions, and to
machinery builders. The bulk of our sales volume is derived from the Speed Monitoring product lines to the grain, feed, ethanol
and biofuels, power generation, and mining industries, as well as other key industrial markets and equipment builders. Products
sold into these markets include shaft speed sensors and switches, ratemeters and counters, motor controllers, vibration switches,
and position monitors. In our sales and marketing efforts, we are continuing to develop additional channel partners in the form of
distributors and independent representatives both domestically and internationally.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The ADS Division decrease in net sales for the second
quarter of 2006 is from a slow down in multiple unit orders of ExpertScan product and scanner bundled sales. For the six months
ended June 30, 2006 compared to the same period in 2005, ADS experienced an increase in net sales due to increased bundled sales
in the first quarter of 2006. ADS is developing an on-line web module for its ExpertScan software product. ExpertScan currently
permits automated data collection from surveys and other paper forms. The new web capability will enable ExpertScan to
automatically create an electronic version of a new or existing ExpertScan document, thereby allowing a combination of paper and
electronic data collection from the same form. Release of the web-enabled version of ExpertScan is expected before the end of this
fiscal year.</font></p>



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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><u><i><b><font size=2>Cost of Goods Sold</font></b></i></u></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Company&#146;s cost of goods sold increased
$52,000 or 11.5% for the three months ended June 30, 2006 compared to the same period in 2005. For the six month period ended June
30, 2006, the cost of goods sold increased $121,000 or 21.5% compared to the samer period in 2005. This increase is primarily a
direct result of increased sales.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><u><i><b><font size=2>Gross Profit</font></b></i></u></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Gross margins for the three month period ended June
30, 2006 were 64.7% versus 60.6% for the same period in 2005. For the six month period ended June 30, 2006, gross margins were
63.4% versus 61.8% for the same period in 2006. The increases in gross margins are due to increases in sales volume of higher
margin items sold within the Controls Division in Fiscal 2006 and some fixed costs that did not increase as sales volume
increased.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><u><i><b><font size=2>Operating Expenses</font></b></i></u></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Total operating expenses increased $30,000 or 3.8% for
the three months ended June 30, 2006 when compared to the same period of the prior year. Of this increase, the Controls Division
contributed an increase of $107,000 or 17.7%, offset by a decrease in ADS of $77,000 or 42.8%. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>For the six months ended June 30, 2006 when compared
to the same period of 2005, operating expenses decreased $33,000 or 2.0%. Of this decrease, the Controls Division contributed an
increase of $134,000 or 10.8%, offset by a decrease in ADS of $167,000 or 43.9%. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Selling and marketing costs increased $20,000 or 6.4%
for the three months ended June 30, 2006 when compared to the same period in 2005. For the six months ended June 30, 2006, selling
and marketing costs increased $21,000 or 3.4% when compared to the same period in 2005. Of the increase for the three months ended
June 30, 2006, the Controls Division contributed an increase of $38,000 or 15.1%, which was offset by a decrease from ADS of
$18,000 or 29.5%. Of the increase for the six months ended June 30, 2006, the Controls Division contributed an increase of $64,000
or 12.9%, which was offset by a decrease from ADS of $43,000 or 35.2%. Sales representative commissions and marketing
communications development for product launches, new literature, trade shows and related sales efforts are the predominant
expenses that caused the increase for the Controls Division. The decrease in ADS is due to fewer personnel.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>General and administrative costs increased $90,000 or
34.7% for the three months ended June 30, 2006 compared to the same period in 2005. For the six months ended June 30, 2006,
general and administrative costs increased $93,000 or 15.8% compared to the same period in 2005. Of this increase for the three
months ended June 30, 2006, the Controls Division contributed an increase of $99,000 or 41.9%, offset by a decrease in ADS of
$9,000 or 39.1%. For the six months ended June 30, 2006, the Controls Division contributes an increase of $113,000 or 21.4% offset
by a decrease in ADS of $20,000 or 33.9%. The overall increase in general and administrative costs from the Controls Division was
due to a one time bonus of $100,000 paid to Peter R. Peterson, Corporate Secretary. In addition to the bonus paid, we have reduced
the amount of expense charged to the ADS division for shared expenses including building expense, utilities, costs of being
public, etc. based on sales volume and building space utilized. These expenses are now charged to the Controls
Division.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Research and development costs decreased $80,000 or
37.2% for the three months ended June 30, 2006 compared to the same period in 2005. For the six months ended June 30, 2006,
research and development costs decreased $147,000. Of the decrease for the three months ended June 30, 2006, the Controls Division
contributed $29,000 or 24.6%, and ADS contributed a decrease of $51,000 or 52.6%. Of the decrease for the six months ended June
30, 2006, the Controls Division contributed $42,000 or 19.1%, and ADS contributed $105,000 or 52.8%. The decrease in the Controls
Division was due to decreased costs of product development and product testing. The decrease in ADS was due to decreased costs
associated with software development.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><u><i><b><font size=2>Non-Operating Income (Loss)</font></b></i></u></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Non-operating income decreased by $20,000 for the
three-month period ended June 30, 2006 compared to the same period for 2005. For the six months ended June 30, 2006, non-operating
income increased $1,119,000 or 336%. Gain on the sale of investment securities decreased $83,000 or 64.8% for the three month
period ended June 30, 2006, compared to the same period in 2005. For the six months ended June 30, 2006, gain on the sale of
investment securities increased $1,012,000 or 383%. The increase for the six months ended June 30, 2006 is a direct result of the
August Technology stock sold and the August Technology/Rudolph merger (see Note 7 of our Financial Statements for more detail). In
addition to the merger, for the three month period ended March 31, 2006, 17,000 shares of August Technology stock were sold with
an average sale price of $11.86 per share, compared to the same period in 2005 in which 11,950 shares of August Technology stock
were sold with an average sale price of $11.46 per share. For the three months ended June 30, 2006, 3,500 shares of Rudolph stock
were sold with an average price of $17.14 per share compared to the same period in 2005 in which 24,450 shares of August
Technology stock were sold with and average price of $11.44 per share.</font></p>



<BR>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="#toc">Table of Contents </A></FONT></P>




<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Interest income increased $59,000 or 147.5% when
comparing the three months ended June 30, 2006 to the same period in 2005. For the six months ended June 30, 2006, interest income
increased $100,000 or 138.9%. This increase was due to the higher interest rates on U.S. Treasury Bills. In addition to the higher
interest rates, the Company had additional funds invested in Treasury Bills when comparing the three and six months ended June 30,
2006 to the same period 2005.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Equity in losses of equity method investee decreased
$11,000 or 100% for the six months ended June 30, 2006 when compared to the same period in 2005. The $11,000 is from the a la mode
investment which was recorded by the equity method of accounting until this investment was written off during the third quarter of
2005. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><u><i><b><font size=2>Income (Loss) Before Income Taxes</font></b></i></u></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Income before income taxes increased $175,000 to an
income before tax of $256,000 for the three-month period ended June 30, 2006 compared to the same period in 2005. For the six
month period ended June 30, 2006 income before income tax increased $1,470,000 when compared to the same period in
2005.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Controls Division had income before income taxes
of $302,000 for the three months ended June 30, 2006 compared to $65,000 for the same period in 2005, an increase of $237,000. For
the six months ended June 30, 2006, the Controls Division had income before income taxes of $424,000 compared to $150,000 for the
same period in 2006, an increase of $274,000. In addition to the increased sales for the Controls Division, our overall efforts to
reduce operating expenses contributed to the increase in net income before income taxes.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>ADS had a loss before income taxes of $22,000 for the
three months ended June 30, 2006 compared to the net loss before income taxes of $24,000 for same period in 2005. For the six
months ended June 30, 2006, ADS had a loss of $9,000 compared to the net loss before income taxes of $60,000 for the same period
in 2005. This reduction in net loss before income tax is due to increased sales in this division and lowered expenses due to less
personnel and lowered General and Administrative expenses (see note in General and Administrative expenses above). </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>ESI Investment income before taxes increased
$1,148,000 to an income before income taxes of $1,218,000 for the six months ended June 30, 2006 compared to the same period in
2005. This increase is primarily due to the August Technology/Rudolph merger discussed previously. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><B><font SIZE=2>LIQUIDITY AND CAPITAL RESOURCES </font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Cash and cash equivalents were $4,992,000 at June 30,
2006 and $6,437,000 at June 30, 2005. Cash used for operating activities of $5,000&nbsp;for the six months ended June 30, 2006 is
primarily a result of our net operating income adjusted for non-cash charges.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Cash provided by investing activities was $1,291,000
for the six month period ended June 30, 2006 and $250,000 for the same period in 2005. Proceeds from the sale of investments for
the six months ended June 30, 2006 increased to $1,291,000 from $278,000 when compared to the same period in 2005. This is a
direct result of the August Technology/Rudolph merger (see Note 7). </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Cash used in financing activities was
$3,354,000&nbsp;and $233,000 for the six months ended June 30, 2006 and June 30, 2005, respectively. During the six months ended
June 30, 2006 and 2005, the Company paid aggregate dividends of $3,607,000 and $258,000, respectively.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Our ongoing cash requirements will be primarily for
capital expenditures, acquisitions, research and development and working capital. Management believes that cash on hand and any
cash provided by operations will be sufficient to meet our cash requirements through at least the next 12 months.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>INV&#146;s primary investments are 343,767 shares of
Rudolph Technology Corporation and 551,759 shares of PPT Vision, Inc. Rudolph Technology Corporation is listed on the Nasdaq stock
market and PPT Vision, Inc. is traded on the OTC exchange. The investment in PPT Vision is accounted for under the equity method
of accounting. These stocks are subject to fluctuations in price and could have a negative effect on the liquidity of the Company.
</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Off-balance Sheet Arrangements</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:3.33%;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>As of June 30, 2006, the Company had no off-balance
sheet arrangements or transactions.</font></p>

<BR>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><b><font size=3><A NAME="controls"></A>Item 3.&nbsp;&nbsp;&nbsp;&nbsp;Controls and Procedures.</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>As of the end of the period covered by this report,
the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and
principal financial officer, of the Company&#146;s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the &#147;Exchange Act&#148;)). Based on this evaluation, the principal executive
officer and principal financial officer concluded that the Company&#146;s disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and
forms.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>There was no change in the Company&#146;s internal
control over financial reporting during the Company&#146;s most recently completed fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Company&#146;s internal control over financial reporting.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=3>PART II.&nbsp;&nbsp;&nbsp;OTHER INFORMATION</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=3><A NAME="legal"></A>Item 1.&nbsp;&nbsp;&nbsp;&nbsp;Legal Proceedings &#150; None</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=3><A NAME="unregistered"></A>Item 2.&nbsp;&nbsp;&nbsp;&nbsp;Unregistered Sales of Equity Securities and Use of Proceeds &#150; None</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=3><A NAME="defaults"></A>Item 3.&nbsp;&nbsp;&nbsp;&nbsp;Defaults Upon Senior Securities &#150; None</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=3><A NAME="submission"></A>Item 4.&nbsp;&nbsp;&nbsp;&nbsp;Submission of Matters to a Vote of Security Holders</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company held its Annual Meeting of Shareholders on April 19,
2006. </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>At the meeting the following matters were voted upon, and the
number of votes cast for or against, as well as the number of abstentions and broker nonvotes, as to each such matter, along with
a separate tabulation with respect to each nominee for office, is setforth below: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Set the number of directors at five for the ensuing year.
</FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=50%>
<TR VALIGN=Bottom>
     <TH COLSPAN=1 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>For</FONT></TH><TH></TH><TH></TH>
     <TH COLSPAN=1 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Against</FONT></TH><TH></TH><TH></TH>
     <TH COLSPAN=1 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Abstention</FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD WIDTH="19%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,010,225</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="19%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="19%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19,909</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="19%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="19%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,670</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>


<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Election of directors to serve for the ensuing year and until
their successors are duly elected and qualified. </FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=50%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=2 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>For</FONT></TH><TH></TH>
     <TH COLSPAN=2 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Withheld</FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Bradley D. Slye</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,888,147</FONT></TD>
        <TD WIDTH="13%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>147,657</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Peter R. Peterson</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,887,322</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>148,482</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Geoffrey W. Miller</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,888,841</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>146,963</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Joseph A. Marino</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,888,908</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>146,896</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>John S. Strom</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,886,572</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>149,232</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.  </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Ratification of the appointment of Boulay, Heutmaker, Zibell
&amp;Co. P.L.L.P. as the Company&#146;s independent accountants for the current fiscal year ending December 31, 2006. </FONT></TD>
</TR>
</TABLE>
<BR>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=50%>
<TR VALIGN=Bottom>
     <TH COLSPAN=1 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>For</FONT></TH><TH></TH><TH></TH>
     <TH COLSPAN=1 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Against</FONT></TH><TH></TH><TH></TH>
     <TH COLSPAN=1 STYLE="border-bottom:1px solid black; font-size:1pt"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Abstention</FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#d6f3e8">
     <TD WIDTH="19%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,023,584</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="19%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="19%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>461</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="19%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="19%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,759</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=3><A NAME="other"></A>Item 5.&nbsp;&nbsp;&nbsp;&nbsp;Other Information &#150; None</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=3><A NAME="exhibits"></A>Item 6.&nbsp;&nbsp;&nbsp;&nbsp;Exhibits</font></b></p>


<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exhibits &#150; See Exhibit Index following signature page. </FONT></TD>
</TR>
</TABLE>
<BR>


<BR><BR><BR><BR>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><B><font SIZE=3><A NAME="signatures"></A>SIGNATURES</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>In accordance with the requirements 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>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


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        <TD WIDTH="60%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>Electro-Sensors, Inc.</font></b></p> </td>
        <TD WIDTH="40%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=2>Electro-Sensors, Inc.</font></b></p> </td> </tr>
    <tr >
        <TD WIDTH="60%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="40%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <TD WIDTH="60%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>August 14, 2006</font></p> </td>
        <TD WIDTH="40%" VALIGN="TOP" STYLE="border-bottom: solid black 1.0pt;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>/s/ Bradley D. Slye</font></p> </td> </tr>
    <tr >
        <TD WIDTH="60%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="40%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>Bradley D. Slye</font></p> </td> </tr>
    <tr >
        <TD WIDTH="60%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="40%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>Chief Executive Officer and Chief Financial Officer</font></p> </td> </tr></table>

<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=3><A NAME="index"></A>EXHIBIT INDEX</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>ELECTRO-SENSORS, INC.</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>FORM 10-QSB FOR QUARTER ENDED JUNE 30, 2006</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>
<BR>

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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=1>Exhibit</font></b></p> </td>
        <TD WIDTH="6%" VALIGN="BOTTOM">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="82%" VALIGN="TOP" STYLE="border-bottom:solid black 1.0pt;">
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=1>Description</font></b></p> </td> </tr>
    <tr >
        <td width="10%" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="6%" VALIGN="BOTTOM">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="82%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="10%" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>31.1</font></p> </td>
        <TD WIDTH="6%" VALIGN="BOTTOM">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="82%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Certification of CEO and CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</font></p> </td> </tr>
    <tr >
        <td width="10%" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="6%" VALIGN="BOTTOM">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="82%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="10%" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>32.1</font></p> </td>
        <TD WIDTH="6%" VALIGN="BOTTOM">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <TD WIDTH="82%" VALIGN="TOP">
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002</font></p> </td> </tr></table>


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<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>electro063188_ex31-1.htm
<DESCRIPTION>CERTIFICATION OF CEO/CFO PURSUANT TO SECTION 302
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 31.1 to Electro-Sensors, Inc. Form 10-QSB for the period ended June 30, 2006 </TITLE>
</HEAD>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:right;'><B><font SIZE=3>EXHIBIT 31.1</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:right;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B>CERTIFICATION PURSUANT TO</B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B>SECTION 302 OF THE SARBANES OXLEY-ACT OF 2002</B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>I, Bradley D. Slye, Chief Executive Officer and Chief
Financial Officer of Electro-Sensors, Inc., certify that:</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


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        <td width="24" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="24" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>1.</font></p> </td>
        <td  valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>I have reviewed this report on Form 10-QSB of Electro-Sensors Inc.</font></p> </td> </tr></table>


<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.5in; text-indent:-0.25in;text-align:left;'><font size=2>&nbsp;</font></p>


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    <tr >
        <td width="24" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="24" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>2.</font></p> </td>
        <td  valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Based on my knowledge, this 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 report;</font></p> </td> </tr></table>


<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.5in; text-indent:-0.25in;text-align:left;'><font size=2>&nbsp;</font></p>


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        <td width="24" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="24" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>3.</font></p> </td>
        <td  valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><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 small business issuer as of, and for, the periods presented in this report;</font></p> </td> </tr></table>


<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.5in; text-indent:-0.25in;text-align:left;'><font size=2>&nbsp;</font></p>


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    <tr >
        <td width="24" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="24" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>4.</font></p> </td>
        <td  valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>The small business issuer&#146;s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:</font></p> </td> </tr></table>


<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.5in; text-indent:-0.25in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.75in;text-align:left;'><font size=2>(a)&nbsp;&nbsp;&nbsp;&nbsp;Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.75in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.75in;text-align:left;'><font size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;Evaluated the effectiveness of the small business issuer&#146;s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.75in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.75in;text-align:left;'><font size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp;Disclosed in this report any change in the small business issuer&#146;s internal control over financial reporting that occurred during the small business issuer&#146;s most recent fiscal quarter (the small business issuer&#146;s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer&#146;s internal control over financial reporting; and</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.75in;text-align:left;'><font size=2>&nbsp;</font></p>


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        <td width="24" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="24" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>5.</font></p> </td>
        <td  valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>The small business issuer&#146;s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer&#146;s auditors and the audit committee of the small business issuer&#146;s board of directors (or persons performing the equivalent functions):</font></p> </td> </tr></table>


<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.5in; text-indent:-0.25in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.75in;text-align:left;'><font size=2>(a)&nbsp;&nbsp;&nbsp;&nbsp;All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer&#146;s ability to record, process, summarize and report financial information; and</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.75in;text-align:left;'><font size=2>&nbsp;</font></p>


<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.75in;text-align:left;'><font size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer&#146;s internal control over financial reporting.</font></p>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


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<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><FONT SIZE="2">August 14, 2006 </FONT></p> </td>
        <TD WIDTH="40%" VALIGN="TOP" STYLE="border-bottom: solid black 1.0pt; padding:0in .7pt 0in .7pt">
<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">/s/ Bradley D. Slye </FONT></p> </td> </tr>
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        <TD WIDTH="60%" VALIGN="TOP" STYLE="padding:0in 0.7pt 0in 0.7pt;">
<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">&nbsp; </FONT></p> </td>
        <TD WIDTH="40%" VALIGN="TOP" STYLE="padding:0in .7pt 0in .7pt">
<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">Bradley D. Slye </FONT></p> </td> </tr>
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<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">&nbsp; </FONT></p> </td>
        <TD WIDTH="40%" VALIGN="TOP" STYLE="padding:0in .7pt 0in .7pt">
<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">Principal Executive Officer and Chief Financial Officer </FONT></p> </td> </tr></table>



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<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>3
<FILENAME>electro063188_ex32-1.htm
<DESCRIPTION>CERTIFICATION OF CEO/CFO PURSUANT TO SECTION 906
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 32.1 to Electro-Sensors, Inc. Form 10-QSB for the period ended June 30, 2006 </TITLE>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:right;'><B><font SIZE=3>EXHIBIT 32.1</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><FONT SIZE="3"><B>CERTIFICATION PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</B> </FONT></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>In connection with the Quarterly Report of
Electro-Sensors, Inc. (the &#147;Company&#148;) on Form 10-QSB for the quarter ended June 30, 2006 as filed with the Securities
and Exchange Commission (the &#147;Report&#148;), I, Bradley D. Slye, Chief Executive Officer and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. &sect;1350, as adopted pursuant to &sect;906 of the Sarbanes-Oxley Act of 2002,
that:</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>(1)&nbsp;&nbsp;The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>(2)&nbsp;&nbsp;The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


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<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">&nbsp; </FONT></p> </td>
        <TD WIDTH="40%" VALIGN="TOP" STYLE="padding:0in .7pt 0in .7pt">
<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">&nbsp; </FONT></p> </td> </tr>
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<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">&nbsp; </FONT></p> </td>
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<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">&nbsp; </FONT></p> </td> </tr>
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<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><FONT SIZE="2">August 14, 2006 </FONT></p> </td>
        <TD WIDTH="40%" VALIGN="TOP" STYLE="border-bottom:solid black 1.0pt; padding:0in .7pt 0in .7pt">
<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">/s/ Bradley D. Slye </FONT></p> </td> </tr>
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<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">&nbsp; </FONT></p> </td>
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<p style='margin-left:.5in;text-indent:-.5in;text-align:center;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">Bradley D. Slye </FONT></p> </td> </tr>
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<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">&nbsp; </FONT></p> </td>
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<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><FONT SIZE="2">Principal Executive Officer and Chief Financial Officer </FONT></p> </td> </tr></table>




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