As I sit down to write this letter, I've just passed my three-year anniversary as President and CEO of Pro-Dex…and what a three years it has been. As I took over the helm of Pro-Dex, we were a company of about 90 employees, our stock was trading at an all-time low of 31 cents and we were under threat of being de-listed with NASDAQ. Making payroll was a struggle and we were about to announce a fiscal year-end pre-tax loss of $2.4 million. We clearly had work to do.

I'm proud to report today that we've made enormous progress in the last three years and particularly in fiscal 2005. As we closed our most recent fiscal year, we were still a company of about 90 employees and our sales had grown to nearly $14 million, modest growth from 2002, but very profitable growth. Gross margin had improved from 39% at the end of fiscal year 2002 to 51% in 2005, a direct result of our concerted efforts to improve the profitability of our sales product mix and increase the performance of our manufacturing operations. We leaned out the administrative expenses of the Company, while increasing our investment in sales, marketing and product development activities. As a result, we reported a pre-tax profit of $2.4 million for fiscal year 2005, a nearly $5 million turnaround from where we started just three years ago. Collectively, these developments have positively impacted our balance sheet, as Pro-Dex is a considerably stronger company with over $3 million in cash and shareholders' equity improving to over $11 million. These results have not gone unnoticed by the market, as our stock price has increased tenfold in the last three years, growing by 81% alone during fiscal 2005.

However, financial results are just part of our success story, because they are just that, "results," a snapshot in time of a constantly evolving organization. In the last three years, we've not just turned the Company around financially, we've completely re-invented it, and in doing so, we've created the possibility of a future significantly more promising than the past or even present. In deciding how to create competitive advantage, a company has really only three choices: do things faster, do things cheaper or do things better. In our case, we've chosen all three, a path less traveled. Pro-Dex creates competitive advantage for its customers, and therefore itself, by getting them to market faster, at a lower total cost and with a higher quality product. While simple in expression, this is a value proposition complex in execution and as a result, Pro-Dex should, by design, appear different to customers and shareholders alike.

As a company, Pro-Dex is attractive to customers who value speed, who understand that windows of opportunity close very quickly and who don't just focus on price, stepping over dollars to pick up pennies. We are attractive to customers who are playing a bigger game and are in it for the long haul. Likewise, I believe that Pro-Dex is attractive to shareholders who are in it for the long haul, who appreciate us building the business on sound financial fundamentals and who believe the business should drive the story, not the story drive the business.

The truth is that growing a business does not happen in convenient 90-day intervals…it happens over time lines that ultimately the business will determine for itself, despite the best intentions of management. Going forward, I can tell you we will have up quarters and we will have down quarters because that is the way businesses naturally grows, and more importantly, because Pro-Dex has chosen an approach to business that derives growth from cycles of expansion and contraction in the market. I can also tell you that over the long haul, Pro-Dex is a company committed to increase in value to customers and shareholders alike, as we build on the foundation we've spent in the last three years putting into place. Pro-Dex is a company filled with people who want to make a difference and who want to be a part of something extraordinary. I can tell you that they do and that they are.

If you were to ask me which company is a greater challenge to lead, Pro-Dex at the end of fiscal 2002 or Pro-Dex at the end of fiscal 2005, the company that lost $2.4 million or the company that made $2.4 million, you might be surprised by my answer….or maybe you wouldn't. I'd have to say the later. Why? Simply put, given our accomplishments of the last three years, more is expected of us, by our customers, by our shareholders and most importantly, by ourselves. But with that challenge comes the reward of having achieved something extraordinary, something we are passionate about at Pro-Dex. It is this commitment to constantly raising the bar that will drive our performance going forward and provide our shareholders with a greater return on their investment. We are eager to take on the opportunities and challenges ahead and I want to thank you again for the privilege and opportunity to lead your Company.

My highest and best regards,

Patrick L. Johnson
President and CEO