SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~June 3130, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from .................to.................

Commission file number 001-12965

ZEVEX INTERNATIONAL, INC.

(Exact name of registrant as specified in charter)

DELAWARE 87-0462807 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)

(State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)

4314 ZEVEX Park Lane, Salt Lake City, Utah 84123

(Address of principal executive offices and zip code)

(801) 264-1001

(Registrant's telephone number, including area code)

NOT APPLICABLE

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 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. Yes [ X ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Large Accelerated Filer [

]

Accelerated Filer [

]

Non-Accelerated Filer [ X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes

No [ X ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of ~~April~~July 17, 2006, the Company had outstanding 35,~~616~~631,~~912~~630 shares of common stock, par value $0.001 per share.

Page 1 of 25

ZEVEX INTERNATIONAL, INC.

FORM 10-Q

For the Three ~~Months~~Month and Six Month Periods Ended ~~March~~June 3130, 2006

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements:

Consolidated Balance Sheets as of ~~March~~June 3130, 2006 and December 31, 2005 4

Consolidated Statements of Operations for the three month and six month periods ended ~~March~~June 3130, 2006 and 2005 5

Consolidated Statements of Cash Flows for the ~~three~~six month periods ended ~~March~~June 3130, 2006 and 2005 6

Notes to Consolidated Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and

Results of Operations 1214

Item 3. Quantitative and Qualitative Disclosures About Market Risk 1921

Item 4. Controls and Procedures 1921

PART II. OTHER INFORMATION

Item 54. ~~Other~~Submission ~~Information~~of 19Matters to a Vote of Security Holders 22

Item 65. ~~Exhibits~~Other ~~and~~Information ~~Reports on Form 8-K 20~~22

~~Signatures~~Item 216. Exhibits and Reports on Form 8-K 23

Signatures

PART I

FINANCIAL INFORMATION

____________________________________________________________________________________________

ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q

____________________________________________________________________________________________

ZEVEX International, Inc. (“ZEVEX” or the “Company”) files herewith balance sheets of ZEVEX as of ~~March~~June 3130, 2006, (unaudited) and December 31, 2005, and the related (unaudited) statements of operations for the respective three month and six month periods ended ~~March~~June 3130, 2006 and 2005 and the related (unaudited) statements of cash flows for the ~~three~~six month periods ended ~~March~~June 3130, 2006 and 2005. In the opinion of ZEVEX’s management, the financial statements reflect all adjustments, all of which are normal recurring adjustments, necessary to fairly present the financial condition of ZEVEX for the interim periods presented. The financial statements included in this report on Form 10-Q should be read in conjunction with the audited financial statements of ZEVEX and the notes thereto included in the Annual Report of ZEVEX on Form 10-K for the year ended December 31, 2005.

ZEVEX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
		March 31,		December 31,
	June 30,		December 31,
	2006	~~2006~~	2005	~~2005~~
ASSETS	(unaudited)	~~(unaudited)~~
Current assets
Cash and cash equivalents	$ 2,137,666	~~$ 926,567~~	$ 1,284,218	~~$ 1,284,218~~
Designated cash for sinking fund payment on industrial
development bond	48,388	~~123,126~~	89,037	~~89,037~~
Accounts receivable, net of allowance for doubtful
Accounts receivable, net of allowance for doubtful accounts
accounts of $130,000		7,806,475		5,641,229
of $154,000 at June 30, 2006 and $130,000 at December 31, 2005	8,109,931		5,641,229
Inventories	5,085,130	~~4,962,231~~	4,586,418	~~4,586,418~~
Marketable securities		19,350		20,250
Deferred income taxes	528,661		-
Deferred income taxes		449,902		-
Prepaid expenses and other current assets	365,699		213,612
Prepaid expenses and other current assets		216,026		193,362
Total current assets	16,275,475		11,814,514
Total current assets		14,503,677		11,814,514
Property and equipment, net	4,898,012		4,639,136
Property and equipment, net		4,890,240		4,639,136
Patents, trademarks and other intangibles, net	344,540		348,467
Patents, trademarks and other intangibles, net		341,367		348,467
Goodwill, net	4,048,264		4,048,264
Goodwill, net		4,048,264		4,048,264
Deferred income taxes, non-current	241,648		-
Total assets	$ 25,807,939	~~$ 23,783,548~~	$ 20,850,381	~~$ 20,850,381~~
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$ 2,611,542	~~$ 3,583,287~~	$ 2,462,071	~~$ 2,462,071~~
Other accrued liabilities	1,695,576	~~1,297,287~~	1,293,876	~~1,290,911~~
Deferred revenue	-	~~20,830~~	52,081	~~52,081~~
Current portion of industrial development bond	100,000	~~100,000~~	100,000	~~100,000~~
Income taxes payable		6,560		2,965
Current portion of other long-term debt	57,767		56,219
Current portion of other long-term debt		56,988		56,219
Total current liabilities	4,464,885		3,964,247
Total current liabilities		5,064,952		3,964,247
Industrial development bond	1,000,000		1,100,000
Industrial development bond		1,100,000		1,100,000
Other long-term debt	680,868		710,143
Other long-term debt		695,605		710,143
Stockholders' equity
Stockholders' equity
Common stock; $.001 par value, 22,000,000
Common stock; $.001 par value, 10,000,000
authorized shares, 5,689,207 issued and 5,630,505
authorized shares, 3,656,145 issued and 3,616,912
outstanding at June 30, 2006 and 5,349,890
outstanding at March 31, 2006 and 3,566,593
issued and 5,291,040 outstanding at December 31, 2005	5,689		5,350
issued and 3,527,360 outstanding at December 31, 2005		3,656		3,567
Additional paid in capital	18,353,263		16,719,396
Additional paid in capital		17,089,820		16,719,396
Unrealized loss on marketable securities	(7,650)		-
Unrealized loss on marketable securities		(900)		-
Treasury stock, 58,702 shares (at cost) at June 30, 2006
Treasury stock, 39,233 shares (at cost) at
and 58,850 shares (at cost) at December 31, 2005	(89,085)		(89,422)
March 31, 2006 and December 31, 2005		(89,422)		(89,422)
Retained earnings (accumulated deficit)	1,399,969		(1,559,333)
Accumulated deficit		(80,163)		(1,557,550)
Total stockholders' equity	19,662,186		15,075,991
Total stockholders' equity		16,922,991		15,075,991
Total liabilities and stockholders' equity		$ 23,783,548		$ 20,850,381

ZEVEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
	Three months ended March 31
	2006	2005
	(unaudited)	(unaudited)
Revenue:
Product sales	$ 10,330,555	$ 5,881,454
Engineering services	262,602	102,710
Total revenue	10,593,157	5,984,164
Cost of sales	6,844,472	3,797,659
Gross profit	3,748,685	2,186,505
Operating expenses:
General and administrative	1,365,267	974,679
Selling and marketing	1,026,616	815,700
Research and development	309,111	321,656
Total operating expenses	2,700,994	2,112,035
Operating income	1,047,691	74,470
Other income (expense):
Interest and other income	12,450	3,129
Interest expense	(29,061)	(29,811)
Income before income taxes	1,031,080	47,788
Benefit (provision) for income taxes	446,307	(2,635)
Net income	$ 1,477,387	$ 45,153
Basic net income per share	$ 0.42	$ 0.01
Weighted average shares outstanding	3,555,870	3,400,964
Diluted net income per share	$ 0.36	$ 0.01
Diluted weighted average shares outstanding	4,073,315	3,512,433

Total liabilities and stockholders' equity

$ 25,807,939

$ 20,850,381

ZEVEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF OPERATIONS
		Three months ended March 31
	Three months ended		Six months ended
		2006	2005
	June 30,		June 30,
		(unaudited)	(unaudited)
	2006	2005	2006	2005
Cash flows from operating activities
	(unaudited)	(unaudited)	(unaudited)	(unaudited)
Net income		$ 1,477,387	$ 45,153
Revenue:
Adjustments to reconcile net income to net cash
Product sales	$ 10,265,661	$ 6,645,727	$ 20,596,216	$ 12,527,181
used in operating activities
Engineering services	210,155	151,926	472,757	254,636
Depreciation and amortization		153,795	173,901
Total revenue	10,475,816	6,797,653	21,068,973	12,781,817
Non-cash stock-based compensation expense		95,003	-
Cost of sales	6,785,085	4,329,168	13,629,557	8,126,827
Stock issued for services		9,255	-
Gross profit	3,690,731	2,468,485	7,439,416	4,654,990
Provision for bad debts		(197)	4,409
Operating expenses:
Deferred income taxes		(449,902)	-
General and administrative	1,360,955	1,153,933	2,726,222	2,128,612
Changes in operating assets and liabilities
Selling and marketing	1,002,557	857,357	2,029,173	1,673,057
Designated cash for sinking fund payment
Research and development	415,135	243,972	724,246	565,628
on industrial development bond		(34,089)	(25,442)
Total operating expenses	2,778,647	2,255,262	5,479,641	4,367,297
Accounts receivable		(2,165,049)	(353,846)
Operating income	912,084	213,223	1,959,775	287,693
Inventories		(375,813)	63,425
Other income (expense):
Prepaid expenses and other assets		(22,664)	(3,091)
Interest and other income	11,618	13,426	24,068	16,555
Accounts payable		1,121,216	(522,631)
Patent infringement settlement	947,760	-	947,760
Accrued and other liabilities		6,376	33,708
Interest expense	(41,057)	(58,181)	(70,118)	(87,992)
Deferred revenue		(31,251)	-
Income before income taxes	1,830,405	168,468	2,861,485	216,256
Income taxes receivable/payable		3,595	2,635
(Provision) benefit for income taxes	(346,418)	-	99,889	(2,635)
Net cash used in operating activities		(212,338)	(581,779)
Net income	$ 1,483,987	$ 168,468	$ 2,961,374	$ 213,621
Cash flows from investing activities
Basic net income per share	$ 0.27	$ 0.03	$ 0.54	$ 0.04
Purchase of property and equipment		(397,799)	(103,092)
Weighted average shares outstanding	5,539,550	5,107,984	5,436,555	5,104,733
Additions of patents and trademarks		-	(3,370)
Diluted net income per share	$ 0.24	$ 0.03	$ 0.48	$ 0.04
Net cash used in investing activities		(397,799)	(106,462)
Diluted weighted average shares outstanding	6,283,047	5,259,914	6,123,246	5,265,177
Cash flows from financing activities
Principal payments on long-term debt		(13,769)	(13,042)
Net (payments on) proceeds from bank line of credit		-	760,592
Proceeds from exercise of stock options		266,255	-
Net cash provided by financing activities		252,486	747,550
Net increase (decrease) in cash and cash equivalents		(357,651)	59,309
Cash and cash equivalents at beginning of period		1,284,218	212,859
Cash and cash equivalents at end of period		$ 926,567	$ 272,168

ZEVEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six months ended June 30
	2006	2005
	(unaudited)	(unaudited)
Cash flows from operating activities
Net income	$ 2,961,374	$ 213,621
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization	341,026	349,194
Non-cash stock-based compensation expense	190,417	-
Stock issued for services	31,482	17,741
Provision for bad debts	(1,969)	4,120
Deferred income taxes	(770,309)	-
Changes in operating assets and liabilities:
Designated cash for sinking fund payment
on industrial development bond	40,649	49,420
Accounts receivable	(2,466,733)	(752,633)
Inventories	(498,712)	497,455
Prepaid expenses and other assets	(159,737)	49,659
Accounts payable	149,471	(521,086)
Accrued and other liabilities	401,764	129,771
Deferred revenue	(52,081)	-
Income taxes receivable/payable	(64)	-

Net cash provided by operating activities	166,578	37,262

Cash flows from investing activities
Purchase of property and equipment	(585,599)	(397,380)
Additions of patents and trademarks	(10,376)	(18,027)

Net cash used in investing activities	(595,975)	(415,407)

Cash flows from financing activities
Principal payments on long-term debt	(27,727)	(26,261)
Payments on industrial development bond	(100,000)	(100,000)
Net proceeds from bank line of credit	-	517,405
Income tax benefit from exercise of stock options	666,825	-
Proceeds from exercise of stock options	743,747	-

Net cash provided by financing activities	1,282,845	391,144

Net increase in cash and cash equivalents	853,448	12,999

Cash and cash equivalents at beginning of period	1,284,218	212,859

Cash and cash equivalents at end of period	$ 2,137,666	$ 225,858

ZEVEX INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~March~~June 3130, 2006

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

The Company, through its divisions and subsidiary, engages in the business of designing, manufacturing and distributing medical devices. The Therapeutics division manufactures and markets enteral nutrition delivery devices. The Applied Technology division designs and manufactures advanced medical components and systems for medical technology companies.

For additional information regarding the Company, refer to its 2005 Annual Report on SEC Form 10-K.

Principles of Consolidation

The consolidated financial statements include the accounts of ZEVEX International, Inc. (the Company) and its wholly-owned operating subsidiary ZEVEX, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information along with the instructions to Form 10-Q. Accordingly, certain information and footnote disclosures normally included in complete financial statements have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and footnotes thereto included in the Company’s 2005 Annual Report on SEC Form 10-K.

In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair presentation have been included in the financial statements. The results of operations for interim periods may not be indicative of the results of operations to be expected for a full year.

Stock Split

On May 19, 2006, the Company effected a 3-for-2 stock split in the form of a 50% stock dividend. The dividend entitled all shareholders of record date of May 4, 2006 to receive one additional common share for every two common shares held. 148 shares of Treasury Stock were used to adjust for fractional shares related to the dividend. The capital stock accounts, all share data and earnings per share data give effect to the stock split, applied retrospectively, to all periods presented.

Stock-Based Compensation

~~During~~The ~~the quarter ended March 31, 2006, the~~ Company adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123R effective as of January 1, 2006, the beginning of the Company’s fiscal year. The Company has adopted SFAS 123R using the modified prospective method, which requires the application of SFAS No. 123R to new awards and to awards modified, repurchased or cancelled after the effective date. Additionally, compensation cost for the portion of outstanding awards for which services have not been rendered (such as unvested options) that are outstanding as of the date of adoption will be recognized as the remaining services are rendered. Results for prior periods have not been restated.

Through December 31, 2005, the Company elected to follow Accounting Principles Board Opinion No. 25 - Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock options, rather than adopting the alternative fair value accounting provided for under SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock Based Compensation – Transition and Disclosure, and as a result the Company did not recognize any compensation expense. The table below illustrates the effect on net income and income per share had compensation cost for the Company’s employee stock options been determined consistent with the fair value methodology prescribed under SFAS 123 for the three months ended March 31, 2005. Net income for the three months ended March 31, 2006 includes $83,000 in stock-based compensation expense associated with granted stock options as a result of adopting SFAS 123R.

Compensation, as amended by SFAS No. 148, Accounting for Stock Based Compensation – Transition and Disclosure, and as a result the Company did not recognize any compensation expense. The table below illustrates the effect on net

1. Description of Business and Summary of Significant Accounting Policies

Stock-Based Compensation (continued)

	March 31, 2006	March 31, 2005
Net income as reported	$ 1,477,387	$ 45,153
Less: Stock compensation expense determined under fair value method, net of related tax effects	-	120,210
Pro forma net (loss) income	$ 1,477,387	$ (75,057)
Earnings (loss) per share:
Basic – as reported	$ 0.42	$ 0.01
Basic – pro forma	$ 0.42	$ ( 0.02)
Diluted – as reported	$ 0.36	$ 0.01
Diluted – pro forma	$ 0.36	$ ( 0.02)

income and income per share had compensation cost for the Company’s employee stock options been determined consistent with the fair value methodology prescribed under SFAS 123 for the three months and six months ended June 30, 2005. Net income for the three months and six months ended June 30, 2006 includes $91,000 and $174,000, respectively in stock-based compensation expense associated with granted stock options as a result of adopting SFAS 123R.

	Three months ended		Six months ended
	June 30, 2006	June 30, 2005	June 30, 2006	June 30, 2005
Net income as reported	$ 1,483,987	$ 168,468	$ 2,961,374	$ 213,621
Less: Stock compensation expense determined under fair value method, net of related tax effects	-	119,959	-	240,169
Pro forma net income (loss)	$ 1,483,987	$ 48,509	$ 2,961,374	$ (26,548)
Earnings (loss) per share:
Basic – as reported	$ 0.27	$ 0.03	$ 0.54	$ 0.04
Basic – pro forma	$ 0.27	$ 0.01	$ 0.54	$ ( 0.01)
Diluted – as reported	$ 0.24	$ 0.03	$ 0.48	$ 0.04
Diluted – pro forma	$ 0.24	$ 0.01	$ 0.48	$ ( 0.01)

New Accounting Pronouncements

In November 2004, the ~~Financial Accounting Standards Board ("~~FASB") issued SFAS No. 151, “Inventory Costs”, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and spoilage, requiring that such costs be recognized as current-period costs regardless of whether they meet the criterion of “so abnormal”, currently required by the guidance in ARB No. 43, Chapter 4, “Inventory Pricing”,. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. As such, the Company adopted this statement as of January 1, 2006. There was no impact on the financial statements as a result of such adoption in the ~~three~~six months ended ~~March~~June 3130, 2006. Because the provisions of this standard must be applied prospectively, there will be no effect on previously-issued financial statements. It is not possible to predict the effect SFAS No. 151 might have on future reported results because it will depend on the levels of “abnormal” inventory costs incurred in the future, if any. However, the Company has not historically had significant amounts of “abnormal” inventory costs, as defined by this Statement.

In May 2005, FASB issued Statement No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle. It also requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings for that period rather than being reported in an income statement. The Company adopted this statement as of January 1, 2006. There was no impact on the financial statements as a result of such adoption in the ~~three~~six months ended ~~March~~June 3130, 2006.

2. Debt

The Company maintains a line of credit arrangement with a financial institution with availability of $3 million. The line matures on May 2927, ~~2006. The~~2007, ~~Company expects that it will be able to renew its line of credit in May 2006. The line of credit~~ is collateralized by accounts receivable and inventory and bears interest at the rate of LIBOR plus 1.80%, which was an effective rate of 67.6313% at ~~March~~June 3130, 2006 and LIBOR plus 2.40%, which was an effective rate of 6.79% at December 31, 2005. The Company’s balance on this line of credit was $0 at ~~March~~June 3130, 2006 and December 31, 2005. Under the line of credit agreement, the Company is restricted from declaring cash dividends ~~and must maintain certain levels of working capital and meet certain other financial covenants. The Company was in compliance with such covenants as of March 31, 2006 and December 31, 2005.~~

Onand ~~April~~must ~~18,~~maintain ~~2001,~~certain ~~the~~levels ~~Company entered into a Term Loan Agreement with a bank for the amount~~ of ~~$1,000,000. The~~working ~~agreement,~~capital ~~as amended, is secured by the Company’s manufacturing facility. The note is due May 15, 2008~~ and ismeet ~~being~~certain ~~amortized~~other ~~over~~financial ~~a thirteen-year term, at an interest rate of 5~~covenants.~~4%.~~ The ~~outstanding~~Company ~~balance~~was atin ~~March~~compliance ~~31,~~with ~~2006~~such ~~was~~covenants ~~$752,593,~~as of ~~which~~June ~~$56~~30,~~988~~ ~~is classified as current~~2006.

2. Debt (continued)

On April 18, 2001, the Company entered into a Term Loan Agreement with a bank for the amount of $1,000,000. The agreement, as amended, is secured by the Company’s manufacturing facility. The note is due May 15, 2008 and is being amortized over a thirteen-year term, at an interest rate of 5.4%. The outstanding balance at June 30, 2006 was $738,635, of which $57,767 is classified as current.

3. Stock Based Compensation

The Company adopted SFAS No. 123R as of January 1, 2006, the beginning of the Company’s fiscal year. SFAS No. 123R revises SFAS No. 123 and supersedes APB 25 and requires companies to expense the fair value of employee stock options and other equity-based awards. For the three month ~~period~~and six month periods ended ~~March~~June 3130 2006, the Company recorded a total non-cash charge of $8391,000 and $174,000, respectively related to stock-based compensation.

The Company recognizes compensation expense equal to the grant-date fair value of stock-based awards for all awards expected to vest, over the period during which the related service is rendered by grantees. The fair value of stock-based awards is determined primarily using the Black-Scholes pricing model, which is the same valuation model used previously in valuing stock options for the pro forma footnote disclosures under the requirements of SFAS No. 123 (see Note 1). The Company uses the “straight line” vesting method to value awards for all options granted after September 30, 2005 and allocates those values over the requisite service periods. Prior to September 30, 2005 the Company used the “graded” vesting method to value awards for all options granted prior to September 30, 2005 and allocated those values over the requisite service periods in determining pro forma expense under SFAS No. 123.

In September 1997, the Board of Directors consolidated its previous three stock option plans into one plan and established the Amended 1993 Stock Option Plan (the “1993 Plan”), which was ratified by shareholders in October 1993. Under the 1993 Plan, ~~600~~900,000 shares of common stock were authorized for issuance, subject to adjustment for such matters as stock splits and stock dividends.

The 1993 Plan provides for the grant of incentive stock options, stock appreciation rights, and stock awards to eligible participants and may be administered by the Board of Directors or by the Compensation Committee. All options granted under the 1993 Plan expire after five to seven years from the grant date and become exercisable no later than four years from the grant date.

During 1999, the Board of Directors established the 1999 Stock Option Plan (the “1999 Plan”), which was ratified by shareholders in June 1999. The 1999 Plan authorized ~~600~~900,000 shares of common stock for issuance, subject to adjustment for such matters as stock splits and stock dividends. The 1999 Plan provides for the grant of incentive stock options, stock appreciation rights, and stock awards to eligible participants and may be administered by the Board of Directors or by the Compensation Committee. All options granted under the 1999 Plan expire after five to ten years from the grant date and become exercisable either immediately or up to six years from the grant date.

ADuring ~~summary~~2006, the Board of Directors established the 2006 Equity Incentive Plan (the “2006 Plan”), which was ratified by shareholders in May 2006. The 2006 Plan authorized 1,000,000 shares of common stock ~~option~~for ~~activity~~issuance, subject to adjustment for ~~both~~such ~~plans,~~matters as stock splits and ~~related~~stock ~~information~~dividends. The 2006 Plan provides for the ~~quarter~~grant ~~ended~~of ~~March~~restricted 31stock, ~~2006~~restricted stock units, ~~follows:~~incentive stock options, stock appreciation rights, and stock awards to eligible participants and may be administered by the Board of Directors or by the Compensation Committee. As of June 30, 2006 no grants have been made under the 2006 Plan.

	Shares	Outstanding Stock Options		Weighted-	Aggregate
	Available for Grant	Number of Shares	Price Per Share	Average Exercise Price	Intrinsic Value
Balance at January 1, 2006	30,123	968,000	$1.90-12.83	4.89	$7,060,138
Options granted	4,000	4,000	13.76	13.76	2,840
Options exercised	–	87,670	1.90-4.75	2.94	1,024,765
Options forfeited	10,750	10,750	3.35-3.57	3.37	123,358
Options expired	–	–	–	–
Balance at March 31, 2006	36,873	873,580	$1.90-13.76	$5.14	8,151,848
Vested at March 31, 2006		666,080	$1.90-12.83	$4.54	6,612,818

3. Stock Based Compensation (continued)

~~Below~~A issummary of stock option ~~information~~activity ~~based~~for onboth ~~segregated~~plans, ~~ranges~~and ofrelated ~~exercise~~information ~~prices~~for asthe ofsix ~~March~~months 31ended June 30, 2006, follows:

Options Outstanding							Options Exercisable
	Shares	Outstanding Stock Options		Weighted-	Aggregate
Range of Exercise Prices		Number Outstanding		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price	Number Exercisable	Weighted- Average Exercise Price
	Available for Grant	Number of Shares	Price Per Share	Average Exercise Price	Intrinsic Value
$ 1.90-3.63		391,580		4.4 years		$ 3.41	391,580	$ 3.41
Balance at January 1, 2006	45,185	1,452,000	$ 1.27- 8.55	3.26	$ 7,060,138
3.94-5.00		363,500		4.0 years		4.49	224,500	4.68
Additional authorization	1,000,000	–	–	–	–
12.83-13.76		118,500		5.6 years		12.86	50,000	12.83
Options granted	(47,900)	47,900	2.40-13.13	10.10	240,010
$ 1.90-13.76		873,580		4.4 years		$ 5.14	666,080	$ 4.54
Options exercised	–	(339,275)	1.27- 3.17	2.25	3,550,334
Options forfeited	17,250	(17,250)	2.23- 2.70	2.27	134,568
Options expired	–	–	–	–
Balance at June 30, 2006	1,014,535	1,143,375	$1.44-13.13	$3.86	$14,104,600
Vested at June 30, 2006		820,500	$1.44-8.55	$3.19	$10,678,443

~~Total~~Below ~~stock-based~~is ~~compensation~~option ~~expense~~information ~~was~~based ~~approximately~~on ~~$83,000~~segregated ~~for~~ranges ~~the~~of ~~three~~exercise ~~months~~prices ~~ending~~as ~~March 31, 2006. As~~ of ~~March 31,~~June ~~2006~~30, there was approximately $671,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plans. That cost is expected to be recognized over the applicable vesting terms of three to five years.2006:

Black-Scholes pricing models require using certain assumptions, including expected volatility, dividend yields, risk-free interest rates, expected lives, and forfeiture rates. Expected stock price volatility, for options issued during the quarter was 77.35%, and was estimated using historical volatilities of the Company’s stock at each grant date. Expected dividend yields were 0.0%. US Treasury bill yields with terms corresponding to expected terms of the awards being valued were used to estimate risk-free interest rates, the weighted average of which was 4.8%. The weighted-average grant-date fair value of equity options granted during the period was $7.84 per option share. In estimating expected lives, contractual and vesting terms of awards, along with historical experience, were considered; however, due to insufficient historical data from which to reliably estimate expected lives, the Company used estimates based on the “shortcut approach” set forth in SFAS 123R, where the expected life of 3.5 years was estimated to be the mid-point between the vesting date and the end of the contractual term. Estimated forfeiture rates were based primarily on historical data.

Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price	Number Exercisable	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price
$ 1.44-3.33	928,125	4.1 years	$ 2.68	745,500	4.2 years	$ 2.65
8.55-13.13	215,250	5.2 years	8.98	75,000	6.5 years	8.55
$ 1.44-13.13	1,143,375	4.3 years	$ 3.86	820,500	4.4 years	$ 3.19

~~The~~Total ~~adoption~~stock-based ofcompensation ~~SFAS~~expense Nowas approximately $91,000 and $174,000 for the three months and six months ending June 30, 2006. As of June ~~123R~~30, ~~had~~2006, there was approximately $842,000 of total unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under the ~~following~~Plans. That ~~effect~~cost onis ~~reported~~expected ~~amounts~~to ~~for~~be recognized over the ~~three~~applicable ~~months~~vesting ~~ended~~terms ~~March 31,~~of ~~2005:~~three to five years.

	Under APB 25	SFAS No. 123R Adjustments	As Reported
Three months ended March 31, 2006
Operating income	$ 1,130,619	$ (82,928)	$ 1,047,691
Net income	$ 1,560,315	$ (82,928)	$ 1,477,387
Income per share
Basic	$ 0.44	$ (0.02)	$ 0.42
Diluted	$ 0.38	$ (0.02)	$ 0.36

Black-Scholes pricing models require using certain assumptions, including expected volatility, dividend yields, risk-free interest rates, expected lives, and forfeiture rates. Expected stock price volatility, for options issued during the six month period ending June 30, 2006 ranged from 77.35% to 78.99%, and was estimated using historical volatilities of the Company’s stock at each grant date. Expected dividend yields were 0.0%. US Treasury bill yields with terms corresponding to expected terms of the awards being valued were used to estimate risk-free interest rates, the weighted average of which was 4.89%. The weighted-average grant-date fair value of equity options granted during the period was $7.00 per option share. In estimating expected lives, contractual and vesting terms of awards, along with historical experience, were considered; however, due to insufficient historical data from which to reliably estimate expected lives, the Company used estimates based on the “shortcut approach” set forth in SFAS 123R, where the expected life of 3.5 years was estimated to be the mid-point between the vesting date and the end of the contractual term. Estimated forfeiture rates were based primarily on historical data.

4. Comprehensive Income

For the three month ~~period~~and six month periods ended ~~March~~June 3130, 2006, the Company had comprehensive income of $1,~~476~~477,~~487~~237 and $2,953,724, respectively. For the three month ~~period~~and six month periods ended ~~March~~June 3130, 2005, the Company had a comprehensive income of $51170,~~543~~628 and $222,171, respectively.

5. Inventories

Inventories consist of the following:

	March 31, 2006	December 31, 2005
	June 30, 2006	December 31, 2005
Materials	$ 3,~~147~~104,~~706~~063	$ 3,139,027
Work in progress	~~766~~844,~~530~~789	756,747
Finished goods, including completed subassemblies	1,~~047~~136,~~995~~278	690,644
	$ 4,962,231	$ 4,586,418
	$ 5,085,130	$ 4,586,418

6. Net Income Per Common Share

Basic net income per common share is calculated by dividing net income for the period by the weighted-average number of the Company’s common shares outstanding.

Diluted net income per common share includes the dilutive effect of options in the weighted-average number of the Company’s common shares outstanding as calculated using the treasury stock method. For the three months ended ~~March~~June 3130, 2006 and ~~March~~June 3130, 2005, ~~zero~~15,000 option shares and ~~311~~575,~~000~~625 option shares, respectively, were not included because they were antidilutive. For the six months ended June 30, 2006 and June 30, 2005, 15,000 option shares and 464,625 option shares, respectively, were not included because they were antidilutive.

7. Business Segments

The Company operates in two business segments: Therapeutics and Applied Technology. The Therapeutics segment includes the manufacture and sale of feeding pumps and disposable sets used by patients who require direct gastrointestinal nutrition therapy (also called enteral feeding). In the Applied Technology segment, the Company provides design and manufacturing services to medical device companies who, in turn, sell the Company’s components and systems under private labels or incorporate them into their products. The Company evaluates the performance of these segments through gross profit, less selling and marketing expenses, and research and development expenses (or contribution margin). The Company does not allocate general and administrative expenses by segment. General and administrative expenses are included in Corporate and Unallocated amounts indicated below.

Segment information for the three months ended ~~March~~June 3130, 2006 (in thousands) follows:

	Therapeutics	Applied Technology	Corporate and Unallocated	Total
Revenue	$ 6,~~885~~429	$ 34,~~708~~047	$ --	$ 10,~~593~~476
Cost of sales	4,~~690~~401	2,~~154~~384	--	6,~~844~~785
Gross profit	2,~~195~~028	1,~~554~~663	--	3,~~749~~691
Selling and marketing	~~740~~700	~~287~~303	--	1,~~027~~003
Research and development	~~240~~268	69147	--	~~309~~415
Contribution margin	1,~~215~~060	1,~~198~~214	--	2,~~413~~273
General and administrative	--	--	1,~~365~~361	1,~~365~~361
Other (income)/expenses	--	--	17(918)	17(918)
Benefit for income taxes	--	--	(446)	(446)
Provision for income taxes	--	--	346	346
Net income				$ 1,~~477~~484
Total assets	$ ~~112~~89	$ 4,048	$ 1921,~~624~~671	$ 2325,~~784~~808

Included in the segment assets disclosed above are specifically identified fixed assets and goodwill. All assets other than those specifically identified fixed assets and goodwill are included in Corporate and Unallocated. The only specifically identified fixed assets include enteral feeding pumps and certain tooling, which are included in the Therapeutics segment. All other fixed assets are used jointly by these segments. Goodwill represents approximately $4,048,000 in the Applied Technology segment. The above segments include stock-based compensation of approximately $83,000 allocated to Therapeutics in the amount of $17,000, Applied Technology in the amount of $17,000, and Corporate and Unallocated in the amount of $49,000. No compensation costs were capitalized.

7. Business Segments (continued)

~~Segment~~Included ~~information~~in ~~for~~the segment assets disclosed above are specifically identified fixed assets and goodwill. All assets other than those specifically identified fixed assets and goodwill are included in Corporate and Unallocated. The only specifically identified fixed assets include enteral feeding pumps and certain tooling, which are included in the ~~three~~Therapeutics ~~months~~segment. All ~~ended~~other ~~March~~fixed 31assets are used jointly by these segments. Goodwill represents approximately $4,048,000 ~~2005~~in (the Applied Technology segment. The above segments include stock-based compensation of approximately $91,000, allocated to Therapeutics in ~~thousands)~~the ~~follows:~~amount of $16,000, Applied Technology in the amount of $20,000, and Corporate and Unallocated in the amount of $55,000. No compensation costs were capitalized.

	Therapeutics	Applied Technology	Corporate and Unallocated	Total
Revenue	$ 2,873	$ 3,111	$ --	$ 5,984
Cost of sales	1,953	1,845	--	3,798
Gross profit	920	1,266	--	2,186
Selling and marketing	688	127	--	815
Research and development	129	193	--	322
Contribution margin	103	946	--	1,049
General and administrative	--	--	974	974
Other (income)/expenses	--	--	27	27
Provision for income taxes	--	--	3	3
Net loss				$ 45
Total assets	$ 306	$ 4,048	$ 13,360	$ 17,714

Segment information for the three months ended June 30, 2005 (in thousands) follows:

Included in the segment assets disclosed above are specifically identified fixed assets and goodwill. Goodwill represents approximately $4,048,000 in the Applied Technology segment.

	Therapeutics	Applied Technology	Corporate and Unallocated	Total
Revenue	$ 3,617	$ 3,181	$ --	$ 6,798
Cost of sales	2,394	1,935	--	4,329
Gross profit	1,223	1,246	--	2,469
Selling and marketing	712	146	--	858
Research and development	167	77	--	244
Contribution margin	344	1,023	--	1,367
General and administrative	--	--	1,154	1,154
Other (income)/expenses	--	--	45	45
Provision for income taxes	--	--	--	--
Net income				$ 168

~~8. Subsequent~~Segment ~~Events~~information for the six months ended June 30, 2006 (in thousands) follows:

On February 23, 2006, ZEVEX International, Inc., (the “Company”) filed a complaint in the United States District Court, alleging the infringement of certain patents by a medical device manufacturer. The complaint alleged that the manufacturer made, sold and offered for sale infusion pumps that utilized ZEVEX patented technology. On April 7, 2006, the parties entered into Settlement Agreement under which the Company will grant a non-exclusive royalty-free license to the manufacturer to use certain Patents in the intravenous infusion pump market and dismiss the lawsuit within seven days of settlement The Settlement Agreement also provides that the manufacturer will pay to the Company the sum of One Million Dollars ($1,000,000), provide a covenant not to sue under certain claims of Patents held by the manufacturer, and provide appropriate patent markings on manufactured product.

	Therapeutics	Applied Technology	Corporate and Unallocated	Total
Revenue	$ 13,314	$ 7,755	$ --	$ 21,069
Cost of sales	9,101	4,529	--	13,630
Gross profit	4, 213	3,226	--	7,439
Selling and marketing	1,440	589	--	2,029
Research and development	499	225	--	724
Contribution margin	2,274	2,412	--	4,686
General and administrative	--	--	2,726	2,726
Other (income)/expenses	--	--	(901)	(901)
Benefit for income taxes	--	--	100	100
Net Income				$ 2,961

The above segments include stock-based compensation of approximately $174,000, allocated to Therapeutics in the amount of $33,000, Applied Technology in the amount of $37,000, and Corporate and Unallocated in the amount of $104,000. No compensation costs were capitalized.

7. Business Segments (continued)

Segment information for the six months ended June 30, 2005 (in thousands) follows:

	Therapeutics	Applied Technology	Corporate and Unallocated	Total
Revenue	$ 6,489	$ 6,293	$ --	$ 12,782
Cost of sales	4,363	3,764	--	8,127
Gross profit	2,126	2,529	--	4,655
Selling and marketing	1,400	273	--	1,673
Research and development	296	270	--	566
Contribution margin	430	1,986	--	2,416
General and administrative	--	--	2,128	2,128
Other (income)/expenses	--	--	71	71
Provision for income taxes	--	--	3	3
Net income				$ 214

8. Other Events

On February 23, 2006, ZEVEX International, Inc., (the “Company”) filed a complaint in the United States District Court, alleging the infringement of certain patents by a medical device manufacturer. The complaint alleged that the manufacturer made, sold and offered for sale infusion pumps that utilized ZEVEX patented technology. On April 7, 2006, the parties entered into a Settlement Agreement under which the Company granted a non-exclusive royalty-free license to the manufacturer to use certain Patents in the intravenous infusion pump market and dismissed the lawsuit within seven days of settlement. The Settlement Agreement also provided that the manufacturer would pay to the Company the sum of One Million Dollars ($1,000,000), provide a covenant not to sue under certain claims of Patents held by the manufacturer, and provide appropriate patent markings on manufactured product. Such amount is included net of associated legal costs in the statement of operations for the three months ended June 30, 2006.

____________________________________________________________________________________________

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

____________________________________________________________________________________________

This Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and other parts of this Form 10-Q contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, such forward-looking statements may be identified by the use of words such as “estimate,” “believe,” “project,” “anticipate” and similar expressions, and together with other discussion of future trends or results, are intended to identify forward-looking statements. Such statements, which include our statements about the level of anticipated expenses during 2006 and our liquidity position, are subject to certain risks and uncertainties, including those discussed below that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date hereof and we disclaim any obligation to update them. All of these forward-looking statements are based on estimates and assumptions made by our management, which although believed to be reasonable, are inherently uncertain and difficult to predict. Therefore, undue reliance should not be placed upon such estimates. There can be no assurance that the benefits anticipated in these forward-looking statements will be achieved. The following important factors, among others, could cause us not to achieve the benefits contemplated herein, or otherwise cause our results of operations to be adversely affected in future periods: (i) continued or increased competitive pressures from existing competitors and new entrants; (ii) unanticipated costs related to our growth and operating strategies; (iii) loss or retirement of key members of management; (iv) increase in interest rates of our cost of borrowing, or a default under any material debt agreement; (v) adverse state or federal legislation or regulation that increases the cost of compliance, or adverse findings by a regulator with respect to existing operations; (vi) loss of customers; (vii) inability to achieve future sales; (viii) the unavailability of sufficient funds for operations or capital expenditures; and (ix) inability to introduce new products as planned. Many of such factors are beyond our control. Please refer to our SEC Form 10-K for the fiscal year ended December 31, 2005 for additional cautionary statements.

Overview

We develop and manufacture high-quality, high-value medical products. We effectively integrate, implement, and support solutions throughout product life cycles based upon our core competencies in sensing, fluid management, and surgical ultrasound technologies. We provide value in a continuum of product solutions, as a diversified medical device company committed to creating products that transform life with patented and proprietary medical device technologies – from sensors and surgical tools to medical electronic systems.

We focus on product development and manufacturing, and distribute our products through selected medical device marketing companies and distributors. We employ product and territory managers to ensure that our services and sales support are complementary to the quality of our innovative products. This distribution strategy allows us to leverage our expertise and technology across diverse applications, while remaining focused on our core competencies.

In the first quarter of 2006, our Applied Technology division experienced sales growth of our core sensors and surgical ultrasound products compared to the same period of 2005. Our largest customers for these products continued to post market share gains, from which we benefited. As a result, the Applied Technology division produced revenue of $3.7 million in 2006, achieving growth of 19% over the first quarter of 2005.

During the same period, our Therapeutics division produced revenue of $6.9 million, achieving growth of 140% over the first quarter of 2005. Based on the growing market acceptance of our EnteraLite® Infinity® product line and the continued sales strength of our original EnteraLite® product line, our domestic Therapeutics sales force produced revenue of $3 million, achieving growth of 22% over the first quarter of 2005. However, the most significant growth in our Therapeutics division in the first quarter of 2006 came from international sales of our Therapeutics product line through Nutricia Clinical. We generated approximately $3.9 million in international sales revenue, highlighted by significantly greater sales than expected to Nutricia Clinical during its expanding launch of the Flocare® Infinity® in Europe.

In the first quarter of 2006, these divisions had consolidated revenue of $10,593,157 and net income of $1,477,387, compared to consolidated revenue of $5,984,164 and net income of $45,153 for the first quarter of 2005. Revenue from our Therapeutics division and from our Applied Technology division constituted 65% and 35%, respectively, of our first quarter 2006 consolidated revenue, compared to 48% and 52%, respectively, for the same period in 2005.

Our Therapeutics Division

Through the sale of enteral feeding pumps and related devices, we have established a competitive position in the U.S. enteral nutrition delivery market. The market in which we compete includes feeding pumps and disposable sets that are used by patients who require direct gastrointestinal nutrition therapy (also called enteral feeding). Enteral feeding is the means of providing liquid nutrition to patients who may have experienced head or neck trauma, or have gastrointestinal disorders such as short bowel syndrome, Crohn’s Disease, bowel pseudo-obstruction and other disorders that prevent normal digestion.

In the second quarter and first six months of 2006, the combined effects of growing sales of our EnteraLite^® Infinity^® portable feeding pump product line in the U.S. and the international roll-out of the Flocare^® Infinity^® product line which we private-label for Nutricia Clinical, drove substantial revenue growth. Both of these product lines were launched in 2005.

During the second quarter of 2006 our Therapeutics division produced revenue of $6.4 million, achieving growth of 78% over the second quarter of 2005. Based on the growing market acceptance of the EnteraLite^® Infinity^® product line and the continued sales strength of our original EnteraLite^® product line, our domestic Therapeutics sales force produced revenue of $3.2 million, achieving growth of 10% over the second quarter of 2005. International Therapeutics division revenue was $3.3 million during the second quarter, up dramatically from $748,000 during the second quarter of 2005.

During the first six months of 2006, Our Therapeutics division produced revenue of $13.3 million and growth of 105% over the first six months of 2005. During that same period, our domestic Therapeutics sales force generated revenue of $6.2 million and growth of 15% over the first six months of 2005. International Therapeutics division revenue was $7.1 million during the first six months of 2006, up from $1.2 million during the first six months of 2005.

Our Applied Technology Division

We also provide design and manufacturing services in a multi-billion dollar market to worldwide medical device leaders who, in turn, sell our components and systems under private label or incorporate them into their products. We call this our Applied Technology division. These OEM (Original Equipment Manufacturer) products include ultrasonic sensors and surgical handpieces, sensor components, and electronic instruments. Our operation in Salt Lake City has been certified to world-class medical device quality standards, meeting ISO 9001:2000 and ISO 13485:2003 certification requirements, and we employ a quality system developed to meet the U. S. Food and Drug Administration’s Good Manufacturing Practices.

In the second quarter and first six months of 2006, our Applied Technology division experienced sales growth of our core sensors and surgical ultrasound products compared to the same period of 2005. Our largest customers for these products continued to post market share gains, from which we benefited. As a result, our Applied Technology division produced revenue of $4.0 million in second quarter of 2006 and growth of 27% over the second quarter of 2005. Our Applied Technology division produced revenue of $7.8 million in the first six months of 2006 and growth of 23% over the first six months of 2005.

In the second quarter of 2006, our two divisions had consolidated revenue of $10,475,816 and net income of $1,483,987, compared to consolidated revenue of $6,797,653 and net income of $168,468 for the second quarter of 2005. For the first six months of 2006, consolidated revenue was $21,068,973 and net income was $2,961,374, compared to consolidated revenue of $12,781,817 and net income of $213,621 for the second quarter of 2005. Revenue from our Therapeutics division and from our Applied Technology division constituted 61% and 39%, respectively, of our second quarter 2006 consolidated revenue, and 63% and 37%, respectively, of our first six months of 2006 consolidated revenue. Revenue from our Therapeutics division and our Applied Technology constituted 53% and 47%, respectively, for the second quarter in 2005, and 51% and 49%, respectively, for the first six months in 2005.

Results of Operations

Our revenue increased by approximately 7754% during the ~~first~~second quarter of 2006, to $10,~~593~~475,~~157~~816, compared to $56,~~984~~797,~~164~~653 for the ~~first~~second quarter of 2005. Therapeutics division products generated 6561% and ~~sales of~~ Applied Technology ~~contract~~division ~~manufactured~~ products generated 3539% of total revenue during the ~~first~~second quarter 2006. During the ~~first~~second quarter of 2006, one customer accounted for ~~approximately~~29% 33and another customer accounted for 14% of ~~our~~total revenue. During the same period of 2005, noone ~~single~~ customer accounted for ~~more than 10~~12% of ~~our~~total revenue.

Our Therapeutics division revenue increased ~~140~~78% to $6,~~885~~428,~~446~~768 during the ~~first~~second quarter of 2006, compared to $23,~~872~~616,~~856~~437 in the ~~first~~second quarter of 2005. The increase in revenue from last year is due to an increase of ~~841~~336% in our international Therapeutics revenue, largely due to the growth of our business with Nutricia Clinical. Nutricia Clinical is our exclusive ~~European~~ distributor for the Flocare® Infinity®, a private-label version of our EnteraLite® Infinity® portable enteral feeding pump, in 32 countries outside of North America. Our domestic EnteraLite® Infinity® and EnteraLite( portable feeding pump and disposable set revenue increased 2214% over the ~~first~~second quarter of 2005~~. These~~, ~~increases~~while ~~were partially offset by a decrease of 23% in sales of~~ our stationary enteral feeding delivery products ~~within~~increased ~~our~~6% ~~Therapeutics~~over ~~division~~the same period of 2005.

Our Applied Technology division revenue increased 1927% to $34,~~707~~047,~~711~~079 during the ~~first~~second quarter of 2006, compared to $3,~~111~~181,~~307~~217 in same period of 2005. Specifically, during the second quarter of 2006, sensor and surgical handpiece revenue increased approximately 3343%, over the ~~first~~second quarter of 2005, primarily because our largest customers for these products continued to post market share gains, and substantially increased purchases of our products ~~from which we benefited~~. Applied Technology engineering revenue increased ~~164~~133% during the second quarter of 2006 compared to the same period in 2005. These increases more than offset a decrease in medical system revenue of approximately 3432% from the ~~first~~second quarter of 2005.

Our ~~gross profit as a percentage of~~ revenue ~~was~~increased by approximately ~~35.4~~65% ~~for~~during the first ~~quarter~~six months of 2006, to $21,068,973, compared to ~~36.5%~~$12,781,817 for the first ~~quarter~~six months of 2005. WeTherapeutics ~~primarily~~division ~~attribute~~products ~~the~~generated ~~decrease~~63% inand ~~gross~~revenue ~~profit during the first quarter~~ of ~~2006~~Applied asTechnology ~~compared~~division toproducts ~~the~~generated ~~same~~37% ~~period~~of intotal ~~the~~revenue ~~prior year to the different product mix delivered~~ during ~~each period and~~ the ~~addition~~first insix ~~2006~~months of ~~approximately $800,000 in lower margin service revenue~~2006. ~~The~~During ~~service~~the ~~relates~~first tosix ~~the~~months ~~maintenance~~ of ~~Nutrica~~2006 ~~Clinical’s~~one ~~enteral~~customer ~~feeding~~accounted ~~pumps~~for 31% and isanother ~~performed~~customer onaccounted ~~our~~for ~~behalf~~12% byof ~~our~~total ~~third party service provider in Europe~~revenue. ~~Please~~During ~~refer~~the tosame ~~Note~~period 7 of ~~the~~2005, ~~Unaudited~~one ~~Consolidated~~customer ~~Financial~~accounted ~~Statements~~ for ~~discussion~~12% of ~~our~~total ~~business segments including gross profit and our definition of contribution margin~~revenue.

~~Depreciation~~Our ~~and~~Therapeutics ~~amortization~~division ~~expenses~~revenue ~~decreased~~increased 105% to $~~153~~13,~~795~~314,184 induring the first ~~quarter~~six months of 2006, ~~from~~compared to $~~173~~6,~~901~~489,293 infor the first ~~quarter~~six months of 2005. The ~~decrease~~increase in revenue from last year is ~~primarily~~due to an increase of 516% in our international Therapeutics revenue largely due to the ~~various~~growth ~~ages~~ of our ~~depreciable~~business ~~assets~~with Nutricia Clinical. Our domestic EnteraLite® Infinity® and EnteraLite( portable feeding pump and disposable set revenue increased 24% over the first six months of 2005. These increases were partially offset by a decrease of 10% in sales of our stationary enteral feeding delivery products within our Therapeutics division for the same period.

~~Selling,~~Our ~~general~~Applied ~~and~~Technology ~~administrative~~division ~~expenses~~revenue increased 23% to $7,754,789 during the first ~~quarter~~six months of 2006 ~~were $2~~,~~391,883,~~ compared to $16,~~790~~292,~~379~~524 ~~for~~in ~~the~~same ~~first~~period ~~quarter~~ of 2005. ~~The~~Specifically, ~~increase~~during is2006, ~~primarily~~sensor ~~related~~and tosurgical ~~increased~~handpiece ~~investments~~revenue inincreased ~~sales~~approximately ~~and marketing~~38%, ~~and~~over ~~increased~~the ~~general~~first ~~and~~six ~~administrative~~months ~~expenses,~~of ~~including recruiting expenses~~2005, ~~personnel~~primarily ~~and~~because ~~insurance~~our ~~costs,~~largest ~~legal~~customers ~~fees,~~for ~~non-cash~~these ~~stock-based~~products ~~compensation~~continued ~~expense,~~to ~~and~~post ~~incentive~~market ~~bonus~~share ~~accruals~~gains. ~~Due~~Applied toTechnology ~~our~~engineering ~~sales~~service ~~growth~~revenue inincreased ~~the~~148% during first ~~quarter~~six months of 2006, ~~our~~compared ~~selling,~~to ~~general~~2005. These ~~and~~increases ~~administrative~~more ~~expenses~~than ~~actually~~offset ~~decreased as~~ a ~~percentage~~decrease ofin ~~sales,~~medical ~~from~~systems ~~30%~~revenue inof ~~first~~approximately ~~quarter~~33% ofcompared ~~2005~~ to ~~23%~~the insame ~~first~~period ~~quarter~~ of ~~2006~~2005.

WeOur ~~combine~~gross ~~the~~profit ~~resources~~as a percentage of ~~our~~revenue ~~full-time~~was ~~engineers~~approximately ~~with~~35.2% ~~several~~for ~~independent~~the ~~contractors~~second quarter of 2006 compared to ~~perform~~36.3% ~~research~~for ~~and~~the ~~development~~second ~~projects~~quarter of 2005. WeGross ~~invested~~profit ~~$309,111~~as ina percentage of revenue was approximately 35.3% for the ~~research~~first ~~and~~six ~~development~~months of ~~new~~2006 ~~products~~compared ~~and~~to ~~technologies~~36.4% ~~during~~for the first ~~quarter~~six months of ~~2006,~~2005. We aprimarily attribute the decrease ~~from~~in gross profit during the ~~$321,656~~second ~~invested~~quarter inand first six months of 2006 compared to the same ~~period~~periods ofin ~~2005~~the prior year to three factors. ~~The~~First, ~~decrease~~the ~~does~~product ~~not~~mix ~~reflect~~delivered ~~reduced~~by ~~efforts~~each tobusiness ~~develop~~division ~~and~~differed ~~introduce~~during ~~new~~each ~~proprietary~~period. Second, we incurred one-time costs associated with the transfer of manufacturing of the enteral disposable products ~~for~~of our Therapeutics division orto ~~proprietary~~a ~~component~~new ~~technologies~~third-party ~~for~~supplier. Third, ~~our~~we ~~Applied~~generated ~~Technology~~lower-margin ~~business~~service revenue of approximately $600,000 in the second quarter and $1,400,000 in the first six months of 2006. WeThe ~~expect~~service ~~research~~relates to the maintenance of Nutricia Clinical’s enteral feeding pumps and ~~development~~is ~~costs~~performed on our behalf by our third party service provider in Europe. Please refer to beNote ~~approximately~~7 5%of the Unaudited Consolidated Financial Statements for discussion of ~~revenue~~our ~~during~~business ~~2006~~segments including gross profit and our definition of contribution margin.

~~Operating~~Depreciation ~~income~~and ~~increased~~amortization toexpenses were $1187,~~047,691,~~231 ~~or 10% of revenue,~~ in the ~~first~~second quarter of 2006 compared to ~~operating income of~~ $74175,~~470,~~293 ~~or 1%, of revenue~~ in the ~~first~~second quarter of 2005~~. We~~, ~~had~~and ~~net income of~~ $1341,~~477,387~~026 ~~or 14% of revenue,~~ in the first ~~quarter~~six months of 2006 compared to ~~net income of~~ $45349,~~153,~~194 ~~or 1% of revenue,~~ in the first ~~quarter~~six months of 2005. The increases in operating and net income during 2006, as compared to 2005, are primarily related to the increase in revenue in 2006 and the resulting increase in our gross profit, which was partially offset by increased selling, general and administrative expenses. In addition to the above stated increase in operating income, net income also included a benefit for income taxes as discussed below.

WeSelling, ~~had~~general anand ~~income~~administrative ~~tax~~expenses ~~benefit~~during the second quarter of 2006 increased to $~~446~~2,~~307~~363,512, incompared to $2,011,290 for the ~~first~~second quarter of 2005. During the first six months of 2006 ~~compared~~selling, togeneral anand ~~income~~administrative ~~tax~~expenses ~~expense~~increased ofto $24,~~635~~755,395, incompared to $3,801,669 for the first ~~quarter~~six months of 2005. The ~~income~~increases ~~tax~~for ~~benefit~~these periods are primarily related to increased investments in ~~2006~~sales isand ~~due~~marketing, and increased general and administrative expenses, including recruiting expenses, personnel and insurance costs, legal fees, non-cash stock-based compensation expense, and incentive bonus accruals. Due to our sales growth in the ~~reversal~~first ofsix ~~part~~months of 2006, our ~~deferred~~selling, ~~tax~~general ~~asset~~and ~~valuation~~administrative ~~allowance~~expenses actually decreased as a ~~result~~percentage of ~~our~~sales, ~~continued~~from ~~operations~~30% ~~and~~in ~~the~~first ~~expected~~six ~~results~~months of ~~future~~2005 ~~operations. Income~~to ~~tax~~23% ~~expense~~ in ~~2005~~first ~~represents~~six ~~minimum~~months ~~tax~~of ~~payments~~2006. Also, due to the ~~various~~appreciation ~~states~~of inour ~~which~~stock, weour ~~are~~market ~~required~~capitalization tobased ~~file. We~~upon ~~expect~~non-affiliate weshareholders ~~will~~exceeded ~~continue~~$75 tomillion ~~realize~~on aJune ~~portion~~30, of2006. Therefore, we have met the ~~deferred~~qualification ~~tax~~requirements ~~asset~~for ~~related~~Sarbanes-Oxley toSection ~~state~~404 ~~net~~compliance ~~operating~~by ~~loss~~year-end. As ~~carryforward~~a inresult, ~~the~~we ~~remaining~~will ~~periods~~incur ofapproximately ~~2006~~$200,000 ~~which~~to ~~would~~$300,000 ~~result~~ in aadditional ~~partial~~consulting ~~reversal~~and ofauditing ~~the~~expenses related ~~valuation~~to ~~allowance~~compliance during the second half of 2006.

We ~~have~~combine ~~state~~the ~~net~~resources ~~operating~~of ~~loss~~our ~~carryforwards~~full-time ~~totaling~~engineers ~~approximately~~with ~~$7,708,000~~several ~~that~~independent ~~begin~~contractors to ~~expire~~perform inresearch ~~2016~~and development projects. ~~The~~We ~~Company~~increased ~~has~~our ainvestment ~~federal~~in the research and ~~state~~development ~~charitable~~of ~~contribution~~new ~~carryforward~~products ~~totaling~~and ~~approximately~~technologies to $4415,~~934~~135 during the second quarter of 2006,~~000~~ ~~that~~up isfrom ~~only~~$243,972 ~~recognizable~~invested ifin the ~~Company~~same ~~has~~period ~~taxable~~of ~~income~~2005. In the second quarter of 2006, research and isdevelopment ~~limited~~costs torepresented aapproximately ~~percentage~~4% of ~~taxable~~our ~~income. This~~revenue, ~~carryforward~~compared ~~expires~~with 4% in ~~2007~~the second quarter of 2005. ~~Finally,~~For the ~~Company~~six ~~has~~month ~~federal~~period ~~capital~~ended ~~loss~~June ~~carryforwards~~30, of2006, ~~approximately~~we invested $9724,~~901,000~~246 ~~that~~in ~~begin~~research and development, compared to ~~expire~~$565,628 infor ~~2006~~the same period of 2005. ~~Under~~In the ~~“change~~first six months of ~~ownership”~~2006, ~~provisions~~our investment in research and development was approximately 3.5% of revenue, compared with 4.5% for the ~~Internal~~first ~~Revenue~~six ~~Code~~months of 2005. We are continuing our efforts to develop and introduce new proprietary products for our Therapeutics business. Additionally, ~~utilization~~we ofare ~~the~~investing ~~Company’s~~in ~~net~~developing ~~operating~~proprietary ~~loss~~component ~~carryforward~~technologies ~~may~~for beour ~~subject~~Applied Technology business. We expect research and development costs to anbe ~~annual~~approximately ~~limitation~~5% of revenue during 2006.

WeOperating ~~have~~income ~~recorded~~increased ato ~~full~~$912,084, ~~valuation~~or ~~allowance~~9% ~~against~~of ~~our~~revenue, ~~state~~in ~~net~~the second quarter of 2006 compared to operating ~~loss~~income ~~carryforwards~~of $213,223, ~~federal~~or ~~and~~3% ~~state~~of ~~charitable~~revenue ~~contribution~~in ~~carryforward~~the ~~and~~second ~~federal~~quarter ~~and~~of ~~state~~2005. Operating ~~research~~income ~~and~~increased ~~development~~to ~~credit~~$1,959,775, ~~carryforward~~or ~~deferred~~9% ~~tax~~of ~~assets~~revenue ~~because~~for wethe ~~did~~first ~~not~~six ~~consider~~months itof ~~more~~2006 ~~likely~~compared ~~than~~to ~~not~~operating ~~that~~income ~~these~~of ~~assets~~$287,693, ~~would~~or be2% ~~realized~~of ~~based~~revenue ~~upon~~for ~~limitations~~the onfirst ~~usage~~six months of ~~certain~~2005. We had net income of $1,483,987 or 14% of revenue in the ~~carryforwards~~second quarter of 2006 compared to net income of $168,468, or 2% of revenue in the second quarter of 2005. AWe ~~portion~~had net income of $2,961,374, or 14% of revenue in the ~~valuation~~first ~~allowance~~six ~~relates~~months of 2006 compared to net income of $213,621, or 2% of revenue in the ~~benefit~~first ~~for~~six ~~stock~~months ~~option~~of ~~exercise~~2005. The increases in operating and net income during the ~~amount~~second quarter and first six months of 2006, as compared to the ~~net~~same ~~operating~~periods ~~loss~~of ~~carryforward. When~~2005, ~~this~~are ~~benefit~~primarily isrelated ~~used~~to the increase in revenue in 2006 and the ~~future~~resulting increase in our gross profit, which was partially offset by increased selling, general and administrative expenses. In addition to the ~~related~~above ~~reduction~~stated increases in operating income, net income for the ~~valuation~~second ~~allowance~~quarter and first six months of 2006 also include $~~778~~948,~~348~~000 ~~will~~in bepre-tax ~~recorded~~income from a patent settlement that is referred to ~~additional-paid-~~above in~~-capital~~ ~~rather~~note ~~than~~8 asto the financial statements and a ~~reduction~~benefit offor income ~~tax~~taxes ~~expense~~discussed below.

AsWe ofhad ~~March~~an 31income tax expense of $346,418 in the second quarter of 2006, ~~our~~compared ~~backlog~~to an income tax expense of ~~customer~~$0 ~~orders~~in ~~was~~the second quarter of 2005. We had an income tax benefit of $799,~~718,000~~889 for the first six months of 2006 compared to an income tax expense of $52,~~410,000~~635 onfor ~~March~~the ~~31,~~first six months of 2005. Income Wetax ~~estimate~~expense ~~that~~in ~~approximately~~the ~~90%~~second quarter includes a tax benefit from the reversal of ~~this~~a ~~backlog~~valuation ~~will~~allowance befrom ~~shipped~~a ~~before~~prior ~~December~~period ~~31,~~that ~~2006~~resulted in a reduction in our overall tax expense. ~~Our~~The ~~backlog~~benefit isfor income tax for ~~contract~~the ~~manufacturing~~first ~~within~~six months of 2006 is due to the ~~Applied~~reversal ~~Technology~~of ~~division~~part ~~only~~of ~~and~~our ~~can~~deferred betax ~~significantly~~asset ~~affected~~valuation byallowance ~~the~~as ~~timing~~a result of ~~annual~~our orcontinued ~~semi-annual~~operations, ~~purchase~~the ~~orders~~expected ~~placed~~results byof future operations ,and our ~~customers~~assessment that it is more likely than not that the related deferred tax asset will be realized. Income tax expense in 2005 represents minimum tax payments due to the various states in which we are required to file.

We have a federal and state charitable contribution carryforward totaling approximately $4,947,000 that is limited to a percentage of taxable income and is recognizable only if the Company has taxable income. This carryforward expires in 2007. The Company also has a federal capital loss carryforward of approximately $9,901,000 that begins to expire in 2006.

We have recorded a full valuation allowance against our federal and state charitable contribution carryforward and federal capital loss carryforward deferred tax assets because we do not consider it more likely than not that these assets will be realized based upon limitations on usage of certain of the carryforwards. A portion of the valuation allowance relates to the benefit for stock option exercises, and increases the amount of the net operating loss carryforward. When this benefit is used in the future, the related reduction in the valuation allowance of $1,063,109 will be recorded to additional-paid-in-capital, rather than as a reduction of income tax expense.

As of June 30, 2006, our backlog of customer orders was $7,581,000 compared to $5,435,000 on June 30, 2005. We estimate that approximately 70% of this backlog will be shipped before December 31, 2006. Our backlog is for manufacturing orders within the Applied Technology division only and can be significantly affected by the timing of annual or semi-annual purchase orders placed by our customers.

Liquidity and Capital Resources

Our primary sources of liquidity have consisted of cash flows from operations, borrowings under our revolving line of credit and other financial arrangements described below. In prior years, we also have increased working capital through the issuance of stock and we may do so in the future.

Cash flows ~~used~~provided inby operating activities for the first ~~three~~six months of 2006 were $~~212~~166,~~338~~578, compared to cash flows ~~used~~provided inby operating activities for the first ~~three~~six months of 2005 of $~~581~~37,~~779~~262. The improvement in cash flows ~~used~~generated during the first ~~three~~six months of 2006 was primarily associated with the increase in net income, anand ~~increase~~increases in accounts payable, accrued expenses, and non-cash stock-based compensation expense, which in turn ~~was~~were partially offset by anincreases ~~increase~~ in revenue growth-related accounts receivable balances ~~due~~and toincreases ~~the substantial increase~~ in ~~revenue during the quarter, an increase in~~ inventories and deferred income taxes.

Our working capital at ~~March~~June 3130, 2006 was $911,~~438~~810,~~725~~590 compared to $6,~~065~~005,~~141~~901 at ~~March~~June 3130, 2005. The increase in working capital is primarily related to the increase in revenue and the corresponding increase in accounts receivable and deferred income tax assets related to the valuation allowance reversal discussed above. The portion of working capital represented by cash was $~~926~~2,~~567~~137,666 at ~~March~~June 3130, 2006 and $~~272~~225,~~168~~858 at ~~March~~June 3130, 2005.

We maintain a line of credit arrangement with a financial institution with availability of $3 million. The line matures on May 2927, ~~2006. We~~2007, ~~expect that it will be able to renew the line of credit in May 2006. The line of credit~~ is collateralized by accounts receivable and inventory and bears interest at the rate of LIBOR plus 1.80%, which was an effective rate of 67.6313% at ~~March~~June 3130, 2006. The rate at December 31, 2005 was LIBOR plus 2.40%, which was an effective rate of 6.79%. The balance on our line of credit was $0 at ~~March~~June 3130, 2006 and December 31, 2005. Under the line of credit agreement, we are restricted from declaring cash dividends and must maintain certain levels of working capital and meet certain other financial covenants. We were in compliance with such covenants as of ~~March~~June 3130, 2006 ~~and December 31, 2005~~.

On April 18, 2001, we entered into a Term Loan Agreement with a bank for the amount of $1,000,000. This agreement is secured by our manufacturing facility. The proceeds from the Term Loan Agreement were used to reduce the balance on our line of credit. The agreement was originally due on May 15, 2003. The Term Loan Agreement was later renegotiated and is now due May 15, 2008. The amount due under the Term Loan Agreement is being amortized over a thirteen-year term at an interest rate of 5.4%. The outstanding balance at ~~March~~June 3130, 2006 was $~~752~~738,~~593~~635, of which $5657,~~988~~767 is classified as current.

In 1997, we completed construction of our 51,000 square foot headquarters and manufacturing facility. The cost of this undertaking was $2,591,177. In 1996, we negotiated a $2.0 million Industrial Development Bond (“IDB”) to finance this construction. As of ~~March~~June 3130, 2006, the remaining principal balance on the IDB was $1,~~200~~100,000. During the first ~~three~~six months of 2006, the monthly interest ranged from 2.99% to 34.7218% (APR).

Purchases of leasehold improvements to our facilities, tooling and new engineering, production and testing equipment totaled $~~397~~585,~~799~~599 for the first ~~three~~six months of 2006 compared to $~~103~~397,~~092~~380 for the first ~~three~~six months of 2005. We expect to spend approximately $~~800~~600,000 during the remainder of 2006 for additional manufacturing equipment and software, for normal replacement of aging equipment, and for manufacturing tooling related to our proprietary products.

On February 23, 2006, we filed a complaint in the United States District Court, alleging the infringement of certain patents by a medical device manufacturer. The complaint alleged that the manufacturer made, sold and offered for sale infusion pumps that utilized our patented technology. On April 7, 2006, the parties entered into a Settlement Agreement under which we granted a non-exclusive royalty-free license to the manufacturer to use certain Patents in the intravenous infusion pump market and dismissed the lawsuit. The Settlement Agreement also provided that the manufacturer would pay us the sum of One Million Dollars ($1,000,000), provided a covenant not to sue under certain claims of Patents held by the manufacturer, and provided for appropriate patent markings on manufactured product.

Our expected principal liquidity requirements are working capital, investments in capital expenditures, and debt reduction. We believe our sources of liquidity are sufficient for operations during the coming twelve months. These sources include our projected cash from operations and, if necessary, draw from our existing revolving line of credit.

Off-Balance Sheet Items

We have no off-balance sheet items.

Critical Accounting Policies and Estimates

In response to the SEC’s Release numbers 33-8040 “Cautionary Advice Regarding Disclosure About Critical Accounting Policies”, and 33-8056, “Commission Statement about Management's Discussion and Analysis of Financial Condition and Results of Operations”, we have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures. Our significant accounting policies are included in our Annual Report on Form 10-K for the year ended December 31, 2005.

We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. We believe the following accounting policies are the most critical to us, in that they are material to the portrayal of our financial statements and they require our most difficult, subjective, or complex judgments in the preparation of our consolidated financial statements.

Allowance for Doubtful Accounts

As a general policy, collateral is not required for accounts receivable; however, we periodically monitor the need for an allowance for doubtful accounts based upon our expected collections of accounts receivable, historical bad debt rates, and specific identification of uncollectible accounts. Based on these factors, we record an allowance to provide for accounts that we believe may not be ultimately collectable. Additionally, customers’ financial condition and credit worthiness are regularly evaluated. Historically, losses on our collections have not been material.

Product and Inventory Obsolescence

Rapid change and technological innovation characterize the marketplace for medical products. As a result, we and our customers are subject to the risk of product and inventory obsolescence, whether from prolonged development, government approval cycles, or the development of improved products or processes by competitors. In addition, the marketplace could conclude that the task for which a customer’s medical product was designed is no longer an element of a generally accepted diagnostic or therapeutic regimen. Accordingly, we write down inventory that we believe is in excess or obsolete. Inventories are stated at the lower of cost or market; cost is determined using the first-in, first-out method.

Sales Returns and Warranty

We record a provision for estimated sales returns and allowances and warranty reserve on products that we have sold. These estimates are based on historical sales returns and warranty expenses and other known factors. If the historical data we use to calculate these estimates does not properly reflect future returns and warranty expenses, revenue could be overstated or understated and expenses could be understated or overstated.

Revenue Recognition

We recognize revenue from products sold directly to end customers when persuasive evidence of an arrangement exists, the price is fixed or determinable, shipment is made and title has passed, and collectibility is reasonably assured. If such criteria are not met, revenue is deferred.

We recognize revenue from products sold to distributors when persuasive evidence of an arrangement exists, the price is fixed or determinable, shipment is made and title has passed, and collectibility is reasonably assured. If such criteria are not met, revenue is deferred. There are no post-shipment obligations other than warranty service related to the product, no rights to return the product unless they are defective, no price protection, and no volume pricing rebates or stock rotation rights.

Contracts to perform engineering design and product development services are generally performed on a time and materials basis. Revenue generally is recognized as milestones are achieved.

Impairment

We have made acquisitions in the past that included a significant amount of fixed assets, goodwill, and other intangible assets. The cost of the acquired companies was allocated first to identifiable assets based on estimated fair values. Intangible assets consist of goodwill, contracts, patents, and licenses.

Effective in 2002, goodwill is no longer amortized but is subject to an annual (or, under certain circumstances, more frequent) impairment test, based on its estimated fair value. Other intangible assets will generally continue to be amortized over their useful lives and also will be subject to an impairment test based on estimated fair value. Estimated fair value is typically less than values based on undiscounted operating earnings because fair value estimates include a discount factor in valuing future cash flows. There are many assumptions and estimates underlying the determination of an impairment loss. Another estimate using different, but still reasonable assumptions could produce a significantly different result. Therefore, impairment losses could be recorded in the future.

amortized over their useful lives and also will be subject to an impairment test based on estimated fair value. Estimated fair value is typically less than values based on undiscounted operating earnings because fair value estimates include a discount factor in valuing future cash flows. There are many assumptions and estimates underlying the determination of an impairment loss. Another estimate using different, but still reasonable assumptions could produce a significantly different result. Therefore, impairment losses could be recorded in the future.

Currently, we assess the impairment of fixed assets and identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an impairment review include the following:

•

A significant underperformance relative to expected historical or projected future operating results;

•

A significant change in the manner of how we use the acquired asset or the strategy for our overall business;

•

A significant negative industry or economic trend.

When we determine that one or more of the above indicators of impairment exist, we evaluate the carrying amounts of the affected assets. The evaluation, which involves significant management judgment, is based on various analyses including cash flow and profitability projections. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of the related long-lived assets, the carrying amount of the underlying assets will be reduced, with the reduction charged to expense, so that the carrying amount is equal to fair value, primarily determined based on future discounted cash flows, using a discount rate determined by management to be commensurate with the risk inherent in our current business model.

In accordance with SFAS No. 142 goodwill and indefinite-lived intangible assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this Statement. This impairment test uses a fair value approach. We are annually required to complete Step 1 (determining and comparing the fair value of our reporting units to their carrying values, as of March 31, 2006, we had one reporting unit with goodwill) of the impairment test. Step 2 is required to be completed if Step 1 indicates that the carrying value of the reporting unit exceeds the fair value, involves the calculation of the implied fair value of goodwill. We completed Step 1 of the impairment assessment for the reporting unit with goodwill at its annual impairment testing date in ~~2005~~the second quarter of 2006. Based upon our valuation procedures, we determined that the fair value of the reporting unit exceeded its carrying value. As such, we were not required to complete Step 2 of the impairment test and no impairment loss was recognized. No indicators of impairment were identified since the ~~2005~~2006 annual impairment testing date.

Net intangible assets and goodwill amounted to approximately $4.4 million as of ~~March~~June 3130, 2006. Net fixed assets amounted to approximately $4.9 million as of ~~March~~June 3130, 2006.

Income Taxes

Income taxes are recorded based on the liability method, which requires recognition of deferred tax assets and liabilities based on the difference between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. A valuation allowance is recorded to reduce our deferred tax asset to an amount that is more likely than not to be realized, as determined based on our analyses of projected taxable income, including tax strategies available to generate future taxable income. Our analyses of future taxable income are subject to a wide range of variables, many of which involve our estimates, and therefore our deferred tax asset may not be ultimately realized. As of ~~March~~June 3130, 2006, we have recorded a full valuation allowance against our ~~state net operating loss carryforwards,~~ federal and state charitable contribution carryforward and federal ~~and~~capital state research and development credit carryforward deferred tax assets because we did not consider it more likely than not that these assets would be realized based upon limitations on usage of certain of the carryforwards. A portion of the valuation allowance related to the benefit for stock option exercise increases the amount of the net operating loss carryforward~~. When~~ ~~this benefit is used in the future the related reduction in the valuation allowance of $778,348 will be recorded to additional-paid-in-capital rather than income tax expense.~~

deferred tax assets because we did not consider it more likely than not that these assets would be realized based upon limitations on usage of certain of the carryforwards. A portion of the valuation allowance related to the benefit for stock option exercise increases the amount of the net operating loss carryforward. When this benefit is used in the future the related reduction in the valuation allowance of $1,063,109 will be recorded to additional-paid-in-capital rather than income tax expense.

Stock-Based Compensation

The Company has adopted Financial Accounting Standards Board Statement of Financial Accounting Standards (“SFAS”) No. 123R. The Company uses the Modified Prospective method, which requires the application of SFAS No. 123R to new awards and to awards modified, repurchased or cancelled after the effective date. Additionally, compensation cost for the portion of outstanding awards for which service has not been rendered (such as unvested options) that are outstanding as of the date of adoption will be recognized as the remaining services are rendered. The Company recorded $91,000 and $174,000, respectively, in stock-based compensation expense during the current three and six month periods. Results from prior periods have not been restated.

____________________________________________________________________________________________

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE

ABOUT MARKET RISK

____________________________________________________________________________________________

For quantitative and qualitative disclosures about market risk affecting ZEVEX, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, which is incorporated herein by reference. Our exposure to market risk has not changed materially since December 31, 2005.

____________________________________________________________________________________________

ITEM 4. CONTROLS AND PROCEDURES

____________________________________________________________________________________________

Our management, including our CEO and CFO, has evaluated the effectiveness of our “disclosure controls and procedures” (the disclosure controls and other procedures that are designed to provide reasonable assurance that for recording, processing, summarizing, and reporting on a timely basis the information required to be disclosed in the periodic reports that we file with the U.S. Securities and Exchange Commission), as of the end of the ~~first~~second quarter.

The evaluation of our disclosure controls by the CEO and CFO included a review of the controls' objectives and design, the operation of the controls, and the effect of the controls on the information presented in this Quarterly Report. Our management, including the CEO and CFO, does not expect that disclosure controls can or will prevent or detect all errors and all fraud, if any. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of the disclosure controls and procedures to future periods are subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on their review and evaluation as of ~~March~~June 3130, 2006, and subject to the inherent limitations as described above, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), are effective. In addition, they are not aware of any change in our internal control over financial reporting during the quarter ended ~~March~~June 3130, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

____________________________________________________________________________________________

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

____________________________________________________________________________________________

ZEVEX held its Annual Meeting of the Shareholders on May 25, 2006. At the Annual Meeting, David J. McNally and Bradly Oldroyd were elected to serve for a three-year term expiring at the 2009 Annual Meeting. The following table summarizes the tabulation for each director nominee.

Director nominee	Votes cast For	Votes Against	Votes Abstained
David J. McNally	5,158,475	177,866	0
Bradly Oldroyd	5,148,875	187,655	0

Directors whose three-year term of office continued after the meeting were: John T. Lemley and Richard L. Shanaman whose terms expire at the 2007 Annual Meeting and Phillip L. McStotts, David B. Kaysen, and Dan Robertson whose term expires at the 2008.

Also approved was the amendment of the Company's Certificate of Incorporation, as amended, (the "Certificate of Incorporation") to (i) increase the total authorized number of shares by 12,000,000 shares (from 12,000,000 to 24,000,000) and (ii) increase the authorized number of shares of common stock by 12,000,000 shares (from 10,000,000 to 22,000,000). Those shareholders voting in favor of the proposal represented 5,053,512 shares of ZEVEX’s common voting stock. Those shareholders voting against the proposal represented 256,545 shares and 26,282 shares abstained from voting.

Also approved was the ZEVEX 2006 Equity Incentive Plan (the “2006 Plan”) as a replacement for the Company’s 1999 Stock Option Plan (the “1999 Plan”) and the Company’s Amended 1993 Stock Option Plan (the “1993 Plan” and, together with the 1999 Plan, the “Old Plans”). Those shareholders voting in favor of the proposal represented 2,173,371 shares of ZEVEX’s common voting stock. Those shareholders voting against the proposal represented 258,822 shares, and 26,081 shares abstained from voting.

At the meeting, the shareholders were asked to ratify the appointment of Ernst & Young LLP, Independent Registered Public Accounting Firm, as independent auditors for the year ending December 31, 2006. Those shareholders voting in favor of the proposal represented 5,326,233 shares of ZEVEX’s common voting stock. Those shareholders voting against the proposal represented 5,366 shares, and 4,740 shares abstained from voting. No other matters were voted upon at the meeting.

____________________________________________________________________________________________

ITEM 5. OTHER INFORMATION

____________________________________________________________________________________________

OnThe ~~February~~Compensation ~~23,~~Committee ~~2006,~~of ~~ZEVEX International, Inc., (~~the ~~“Company”)~~Board ~~filed~~of ~~a complaint in~~ the ~~United~~Directors ~~States~~has ~~District~~approved ~~Court,~~forms ~~alleging the infringement~~ of ~~certain patents by~~ a ~~medical~~Restricted ~~device~~Stock ~~manufacturer. The~~Agreement ~~complaint alleged that the manufacturer made, sold~~ and ~~offered~~a ~~for~~Restricted ~~sale~~Stock ~~infusion~~Unit ~~pumps that utilized ZEVEX patented technology. On April 7, 2006, the parties entered into Settlement~~ Agreement under ~~which~~ the Company’s ~~will~~2006 ~~grant~~Equity aIncentive ~~non-exclusive~~Plan, ~~royalty-free license to~~ the ~~manufacturer~~forms ~~to use certain Patents in the intravenous infusion pump market and dismiss the lawsuit within seven days~~ of ~~settlement The~~which ~~Settlement~~are ~~Agreement~~filed ~~also provides that the manufacturer will pay to the Company the sum of One Million Dollars ($1~~herewith,~~000,000),~~ ~~provide~~together awith ~~covenant not to sue under certain claims of Patents held by~~ the ~~manufacturer, and provide appropriate patent markings on manufactured product~~Plan.

The foregoing is a summary description of terms of the Settlement Agreement and is qualified entirely by the text of the Settlement Agreement, a copy of which is attached as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, with portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

____________________________________________________________________________________________

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

____________________________________________________________________________________________

(a)

Exhibits

The following exhibits are attached hereto or are incorporated herein by reference as indicated in the table below:

Exhibit			Location if other
	No.	Title of Document	than attached hereto

3.01*

Certificate of Incorporation

Amendment No. 1 to Form S-1,

filed October 24, 1997

3.02*

Amended Bylaws

March 31, 2002 Form 10-Q

filed May 10, 2002

31.01 Rule 13a-14(a)/15d-14(a)

10.38#		ZEVEX International, Inc. 2006 Equity Incentive Plan		May 25, 2006 Proxy
			filed April, 17, 2006
31.01	Rule 13a-14(a)/15d-14(a)

Certification of Chief Executive Officer

31.02	Rule 13a-14(a)/15d-14(a)
		Certification of Chief Financial Officer

32.01

Section 1350 Certification of Chief Executive Officer

32.02

Section 1350 Certification of Chief Financial Officer

10.3639# ~~Settlement~~Form ~~Agreement~~of ~~between~~restricted astock ~~certain~~grant ~~medical~~for ~~device~~the ~~manufacturer and~~ ZEVEX International, Inc., ~~dated~~2006 ~~April~~Equity 7,Incentive ~~2006.~~Plan

10.40#

Form of restricted stock unit for the ZEVEX International, Inc. 2006 Equity Incentive Plan

(b)

Reports on Form 8-K.

On ~~February~~April 1626, 2006, a Form 8-K was filed to disclose financial results for the ~~fourth~~first quarter ~~and fiscal year~~ ended ~~December~~March 31, ~~2005~~2006.

On April 13, 2006, a Form 8-K was filed to disclose that the Company entered into a settlement agreement to a filed lawsuit with a medical device manufacturer, alleging the infringement of certain patents by the medical device manufacturer.

# ~~Application~~ ~~has~~Identifies ~~been~~a ~~made~~“management tocontract ~~the~~or ~~Securities~~compensatory ~~and~~plan ~~Exchange Commission to seek confidential treatment of certain portions of this exhibit under Rule 406 of the Securities Act of 1933~~ or ~~Rule 24(b)-2 under the Securities Exchange Act of 1934~~arrangement”. ~~Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission.~~

Denotes exhibits specifically incorporated in this Form 10-Q by reference to other filings of the Company

pursuant to the provisions of Securities and Exchange Commission Rule 12b-32 and Regulation S-K. These documents are located under File No. 001-10287 at, among other locations, the Securities and Exchange Commission, Public Reference Branch, 450 5^th St., N.W., Washington, D.C. 20549.

____________________________________________________________________________________________

SIGNATURES

____________________________________________________________________________________________

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ZEVEX INTERNATIONAL, INC.

Dated: ~~May~~July 331, 2006

Exhibit 31.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER,

AS REQUIRED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.

I, David J. McNally, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ZEVEX International, Inc.;

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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer 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 registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: ~~May~~July 331, 2006

Exhibit 31.02

CERTIFICATION OF CHIEF FINANCIAL OFFICER,

AS REQUIRED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.

I, Phillip L. McStotts, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ZEVEX International, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: ~~May~~July 331, 2006

EXHIBIT 32.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER,

AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

I, David J. McNally, hereby certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(i) The accompanying quarterly report on Form 10-Q for the quarter ended ~~March~~June 3130, 2006, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii) The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of ZEVEX International, Inc.

Dated: ~~May~~July 331, 2006

By		/s/ David J. McNally
David J. McNally, CEO
	(Chief Executive Officer)

This certification accompanies the above-described Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EXHIBIT 32.02

CERTIFICATION OF CHIEF FINANCIAL OFFICER,

AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

I, Phillip L. McStotts, hereby certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(ii) The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of ZEVEX International, Inc.

Dated: ~~May~~July 331, 2006

By		/s/ Phillip L. McStotts
Phillip L. McStotts, CFO
	(Chief Financial Officer)

Exhibit 10.~~36#~~39

~~SETTLEMENT~~ZEVEX ~~AGREEMENT~~International, Inc.

~~This~~RESTRICTED ~~Agreement,~~STOCK is effective as of the date of the last signature hereto, among Zevex, Inc., a Delaware corporation having a place of business at 4314 Zevex Park Lane, Salt Lake City, Utah 84123 (hereinafter “ZEVEX”), [***], a California limited liability company and [***], a California limited liability company, both having a place of business at [***] (hereinafter collectively and individually “[***]”) and [***], a Delaware corporation having a place of business at [***] (hereinafter “PURCHASER”).AGREEMENT

~~RECITALS~~UNDER

~~WHEREAS,~~2006 ~~ZEVEX~~EQUITY isINCENTIVE ~~the owner of all right, title and interest in and to United States Patent No. 5,704,584 entitled Pinch Clip Occluder for Infusion Sets, issued January 6, 1998 (the “’584 Patent”);~~PLAN

~~WHEREAS,~~Name ~~[***]~~of ~~has previously and is currently manufacturing, marketing and/or selling intravenous (I.V.) infusion pumps and administration sets having a flow stop for use therein;~~Recipient: ______________________

~~WHEREAS,~~Grant ~~[***] owns U.S. Patent No. [***] (the ‘921 patent”) for a Curvilinear Peristaltic Pump Having Insertable Tubing Assembly;~~Date: ______________________

~~WHEREAS,~~Number ZEVEX has objected to [***]’s making, using, selling, or offering for sale its infusion pumps and administration sets having a flow stop for use therein, and has filed a lawsuit against [***] alleging patent infringement of ~~the~~Shares ~~‘584 Patent in the United States District Court for the District~~ of ~~Utah,~~Restricted ~~Central Division, Case No. 2~~Stock:~~06cv00158 DAK (hereinafter the “Lawsuit”);~~ ______________________

~~WHEREAS,~~1. Award. On ~~just~~the ~~prior~~grant todate ~~the~~set ~~filing~~forth ofabove (the ~~Lawsuit~~“Grant Date”), ~~[***]~~ZEVEX ~~and~~International, ~~[***]~~Inc., a(the ~~New~~“Company”) ~~York~~has ~~corporation~~awarded ~~having~~you athe ~~principal~~number ~~place~~ of ~~business~~shares atof ~~[***],~~Restricted ~~entered~~Stock ~~into~~(“Restricted anShares”) ~~Asset~~indicated ~~Purchase Agreement dated as of February 10~~above, ~~2006~~subject ~~(hereinafter,~~to the ~~“Purchase~~terms ~~Agreement”),~~and ~~pursuant~~conditions toset ~~which~~forth ~~[***]~~in ~~would~~the ~~acquire~~Company’s ~~substantially~~2006 ~~all~~Equity ofIncentive Plan (the ~~business~~“Plan”) ~~assets~~and ofthis ~~[***];~~Award Agreement.

~~WHEREAS,~~2. Vesting. The ~~[***]~~Restricted ~~subsequently~~Shares ~~assigned~~shall ~~its~~vest ~~rights~~in ~~under~~four ~~the~~equal ~~Purchase~~annual ~~Agreement~~installments toof ~~the~~twenty ~~PURCHASER~~five ~~and~~percent ~~upon~~(25%) ~~closing~~of total number of Restricted Shares stated above at the ~~transactions~~end ~~contemplated~~of byeach of the ~~Purchase~~first ~~Agreement~~four years from the ~~‘921~~Grant ~~patent~~Date, ~~will~~so that 100% of the Restricted Shares shall be ~~assigned~~vested on the fourth anniversary of the Grant Date, subject to ~~PURCHASER;~~your ~~and~~continued service as an Employee of the Company or a Subsidiary on each vesting date.

~~WHEREAS~~3. Book Entry Account; Issuance of Shares. The Company shall not issue you a certificate for your shares on the Grant Date. Instead, ~~without~~the ~~admitting~~Company orshall ~~denying~~instruct its transfer agent to establish a book entry account representing the ~~allegations~~number of ~~patent~~Restricted ~~infringement~~Shares ~~found~~issued into you hereunder. As soon as practicable following the ~~Complaint~~vesting ~~and/or~~date, ~~First~~the ~~Amended~~Company ~~Complaint~~will ~~filed~~issue to you (or, in the ~~Lawsuit~~case of your death of Disability, ~~and~~to ~~without~~your ~~admitting~~estate or ~~denying~~personal ~~the~~representative) ~~validity~~certificates ~~and/or~~representing ~~enforceability~~the number of ~~the~~Restricted ~~‘584~~Shares ~~Patent~~that have vested, provided that you have satisfied any tax withholding obligation and otherwise executed any documents that the ~~Parties~~Company ~~now~~may ~~desire~~require toin ~~amicably~~connection ~~resolve~~with ~~all~~such ~~claims~~issuance. When ~~related~~these tocertificates ~~[***]’s~~are ~~manufacturing,~~issued ~~marketing~~to ~~and/or~~you, ~~selling~~the shares of ~~intravenous~~Stock ~~(I.V.)~~represented ~~infusion~~thereby will ~~pumps~~be ~~and~~freely ~~administration~~tradable ~~sets~~in ~~having~~the apublic ~~flow~~market, ~~stop~~assuming ~~for~~that ~~use~~the ~~therein~~Company continues to meet the requirements of the Securities and ~~[***]’s~~Exchange Commission and of the ~~PURCHASER’s~~stock ~~future~~exchange ~~manufacturing,~~on ~~marketing~~which ~~and/or~~the ~~selling~~shares of ~~infusion~~Stock ~~pumps~~are ~~and~~publicly ~~administration~~traded. The ~~sets~~Company ~~having~~has ano ~~flow~~obligation ~~stop~~to you to continue to qualify for ~~use~~such ~~therein~~public trading of its Stock.

~~AGREEMENT~~4. Forfeiture of Unvested Restricted Shares upon Termination of Employment; Forfeiture of Unvested and Vested Restricted Shares upon Termination for Cause. If you cease to be an Employee for any reason prior to any vesting date (other than for your death or Disability), then all unvested Restricted Shares shall immediately be forfeited by you without notice to you. If you are removed by the Company as an Employee for Cause (as defined below), all outstanding Restricted Shares, whether unvested or vested, shall be forfeited by you as of the date of your removal for Cause. For purposes of this Award Agreement, “Cause” shall mean any of the following: embezzlement; fraud; dishonesty; non-payment of an obligation to the Company; breach of fiduciary duty or deliberate disregard of the Company’s rules that results in loss, damage, or injury to the Company; or an unauthorized disclosure of the Company’s trade secrets or confidential information.

~~NOW~~5. Acceleration of Vesting upon Death or Disability. If your employment with the Company terminates because of your death or Disability, ~~THEREFORE~~then 100% of the Restricted Shares shall become vested. In the case of the termination of your employment due to your death, the vesting date shall be the date of your death. In the case of the termination of your employment for ~~adequate~~your ~~consideration~~Disability, the ~~receipt~~vesting ~~and~~date ~~sufficiency~~shall be the later of (i) ~~which~~the isdate ~~hereby~~of ~~acknowledged,~~termination of your employment or (ii) the ~~Parties~~determination ~~agree~~of asyour ~~follows:~~Disability.

~~RECITALS~~6. Tax Withholding. The Company will withhold from the number of shares of Stock otherwise issuable hereunder a number of shares necessary to satisfy the minimum statutorily required tax withholding obligations. Such shares will be valued at their Fair Market Value when the taxable event occurs.

17. Limited ~~Recitals~~Transferability. The Restricted Shares may not be transferred, pledged, assigned, hypothecated or otherwise disposed of in any way, except by will or by the laws of descent and distribution. The Restricted Shares shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Restricted Shares contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon the Restricted Shares, shall be null and void and without effect. Once the Restricted Shares have vested and certificates have been issued therefore, such shares of Stock may be freely tradable on the public market, as described in Section 3 above.

8. Other Restrictions. The ~~Recitals~~issuance ~~set~~of ~~forth~~shares ~~above~~of ~~are~~Stock ~~incorporated~~hereunder ~~herein~~is subject to compliance by ~~reference~~the asCompany ~~though~~and ~~set~~you ~~forth~~with all applicable legal requirements applicable thereto, including tax withholding obligations, and with all applicable regulations of any stock exchange on which the Stock may be listed at the time of issuance. The Company may delay the issuance of shares of Stock hereunder to ensure at the time of issuance there is a registration statement for the shares in ~~full~~effect under the Securities Act of 1933.

29. No ~~Grant~~Employment or Continued Service. Neither the award to you of ~~Licenses~~the ~~and~~Restricted ~~Duty~~Shares nor the delivery to ~~Mark~~you of this Award Agreement or any other document relating to the Restricted Shares will confer on you the right to employment with the Company or to continued service as an Employee.

a10. No ~~Grant~~Shareholder Rights. Neither the award to you of ~~Non-Exclusive~~the ~~License~~Restricted Shares nor the delivery to you of this Award Agreement or any other document relating to the ~~‘584~~Restricted ~~Patent~~Shares will entitle you to any rights of a shareholder of the Company with respect to the shares of Stock subject to this Award Agreement prior to your receipt of the shares of Stock in accordance with this Award Agreement.

~~ZEVEX~~11. No ~~hereby~~Fractional ~~grants~~Shares. The toRestricted ~~each~~Shares of [***] and the PURCHASER a royalty-free, worldwide perpetual license under the ‘584 Patent and all divisionals, renewals, continuations and continuations-in-part thereof and all United States Letters Patent which may be granted ~~thereon~~hereunder ~~and~~shall ~~all reissues and extensions thereof and all applications for Letters Patents having a common priority claim with the ‘584 Patent which may hereafter~~ be ~~filed~~issued inonly ~~any country or countries foreign to the United States and all divisionals, renewals, continuations and continuations-~~in~~-part~~ ~~thereof~~whole ~~and~~shares ~~all~~of ~~foreign patents which may be granted thereon and all reissues and extensions thereof solely to permit [***] and the PURCHASER to manufacture~~Stock, ~~have manufactured, market, sell or import intravenous (I.V.) infusion pumps~~ and ~~administration~~no ~~sets~~fractional ~~having~~share aof ~~flow~~Stock ~~stop for use therein throughout the world. Said royalty-free, worldwide perpetual license~~ shall ~~not~~be ~~include the right to make, use, sell, offer to sell or import any enteral feeding infusion pumps and administration sets under any ZEVEX patent~~issued. ~~A current listing of patents falling within the scope of this license are attached hereto as Exhibit B.~~

b12. Mergers, ~~Covenant~~Reorganizations, ~~Not~~and toCertain ~~Sue~~Other ~~Under~~Changes. In ~~Claim~~the 21event of ~~U.S.~~the ~~Patent~~Company’s ~~No.~~liquidation, ~~[***]~~reorganization, separation, merger or consolidation into, or acquisition of property or stock by another corporation, or sale of substantially all assets to another corporation, your rights with respect to the Restricted Shares awarded hereunder shall be governed by the Committee, as provided in the Plan.

[***] and PURCHASER hereby covenant and agree not to sue ZEVEX under claim 21 of the ‘921 patent as well as any corresponding claim of any issued or to be issued foreign application corresponding to the ‘921 patent13. ~~All~~ ~~parties~~Additional acknowledge that the covenant not to sue is limited solely to claim 21 of the ‘921 patent and any corresponding claim of any foreign patent and shall not extend to any other claims of the ‘921 patent or other claims of any corresponding foreign patents. A current listing of such foreign patents and/or applications are attached hereto as Exhibit C.Provisions

ca. This ~~Patent~~Award ~~Marking~~Agreement is subject to the provisions of the Plan, which may be amended by the Committee from time to time as provided therein. A copy of the Plan is available upon request. Capitalized terms not defined in this Award Agreement are used as defined in the Plan. If the Plan and this Award Agreement are inconsistent, the provisions of the Plan will govern.

~~[***]~~b. The Plan and ~~PURCHASER~~this ~~hereby~~Award ~~agree~~Agreement ~~that~~represent ~~they~~the ~~will~~entire ~~mark~~agreement of you and the Company with respect to the Restricted Shares granted pursuant to this Award Agreement and supersedes in their ~~products~~entirety all prior undertakings and agreements of the Company and you with respect to the ~~appropriate~~subject ~~patent~~of ~~number~~this ~~under~~Award ~~which~~Agreement ~~they~~and ~~have~~may ~~taken~~not be modified except by means of a ~~license~~written ~~pursuant~~agreement tobetween 35the ~~U.S.C.~~Company §and ~~287~~you.

3c. Interpretations ~~Payment~~of tothe ~~ZEVEX~~Plan and this Award Agreement by the Committee are binding on you and the Company.

~~[***]~~d. Neither ~~and~~ the ~~PURCHASER~~Plan ~~agree~~nor tothis ~~make~~Award ~~payment~~Agreement shall create or be construed to ~~ZEVEX~~create ina ~~the~~trust ~~aggregate~~or ~~sum~~separate fund of ~~One~~any ~~Million~~kind ~~dollars~~or ~~($1,000,000~~a fiduciary relationship between the Company and any other person.~~00)~~ To inthe ~~complete~~extent ~~monetary~~that ~~consideration~~any ofperson ~~this~~acquires ~~compromise~~a ~~Settlement~~right to receive payments form the Company pursuant to an Award Agreement, ~~and~~such right shall be no greater than the ~~license~~right ~~and~~of ~~other~~any ~~covenants~~unsecured ~~and~~creditor ~~agreements~~of ~~contained~~the ~~herein~~Company.

4e. Any ~~Dismissal~~notice hereunder by you to the Company shall be given in writing and such notice shall be deemed duly given only upon receipt thereof by the Secretary of the ~~Lawsuit~~Company. Any notice hereunder by the Company to you shall be given in writing and such notice shall be deemed duly given only upon receipt thereof at such address as is reflected on the then-current records of the Company.

~~The~~f. This ~~Parties~~Award ~~agree~~Agreement ~~that~~shall ~~within~~be ~~seven~~construed ~~(7) days after receiving a fully executed original of this Agreement~~ and ~~confirmation~~enforced ~~of the transfer of funds~~ in accordance with ~~Paragraph 3,~~ the ~~Parties~~laws ~~will file, through their counsel~~ of ~~record,~~the aState ~~dismissal~~ of ~~the Lawsuit with prejudice~~Utah, inwithout ~~the~~giving ~~form~~effect ~~attached hereto as Exhibit A. A file-stamped copy of the dismissal will be provided~~ to ~~counsel for~~ the ~~Parties~~choice asof ~~soon~~law asprinciples ~~it is available~~thereof.

5IN WITNESS WHEREOF, the Company and you have executed this Award Agreement effective as of the Grant Date. By ~~Releases~~signing below, you acknowledge that you have received, have read, and understand the terms of the Plan and this Award Agreement.

~~a. In consideration of the promises contained herein, ZEVEX, on the one hand, subject to the receipt of the funds set forth in Paragraph 3, and~~ [***]signature ~~and~~page the PURCHASER, on the other hand, for themselves, and each and all of their respective executors, administrators, successors, predecessors, assigns, subsidiary and affiliated business entities, licensees, agents, employees, partners, and any legal or personal representatives, hereby forgives, releases and discharges the other from and on account of any and all manner of claims, cross-claims, counter-claims, demands, actions, causes of action, charges, liabilities, liens, agreements, damages, obligations, costs follows]

orRECIPIENT ~~expenses,~~ZEVEX ~~of any and every kind or nature whatsoever~~International, at law or in equity, known or unknown, suspected or unsuspected, fixed or contingent, which they, or any of them, now have or have had against the other, or any of them, for or by reason or of arising out of any matter, thing, or cause whatsoever relating to the LawsuitInc.

~~b. The~~_ ~~Parties~~Signature ~~expressly agree that the foregoing release only applies to causes~~ of ~~action~~Recipient orBy:_______________________________ ~~claims~~Signature ~~accruing prior to the execution~~ of this Agreement, and shall have no effect on, nor in any way restrict the Parties’ rights or remedies concerning any causes of action or claims arising or accruing after the effective date of this Agreement. The Parties further expressly agree that this release does not apply to any cause of action or claim related to or arising out of any alleged breach of this Agreement. Representative

~~c. ZEVEX , [***] and the PURCHASER acknowledge that they are familiar that:~~ _

“AName ~~general~~of ~~release~~Recipient—Please ~~does~~Print ~~not~~__________________________________ ~~extend~~Name ~~to claims which the creditor does not know or suspect to exist in his favor at the time~~ of ~~executing~~Representative—Please ~~the release which if known by him must have materially affected his settlement with the debtor.”~~ Print

The Parties expressly waive and relinquish any and all rights and benefits which they may have, under Section 1542 of the California Civil Code and under any similar laws under the laws of the State of Utah to the full extent that the Parties may lawfully waive all such rights and benefits pertaining to the subject matter of this Agreement. The Parties understand and acknowledge the significance and consequence of this specific waiver of Section 1542 and similar Utah law and hereby assume full responsibility for any and all claims that they may hereafter discover or incur against the respective other Party. The parties further expressly agree to a release of equal scope under Utah law. _

6.Social ~~Covenant~~Security ~~Not~~Number toof ~~Sue~~Recipient ~~Over~~__________________________________ ~~Released~~Title ~~Claims.~~of Representative

The Parties agree that other than as set forth in this Agreement, they shall not commence, or cause to be commenced, or maintain any claim, lawsuit, arbitration, cross-complaint or proceeding of any kind pursuant to, related to, or arising out of the claims released in Paragraph 5 above against any person or entity released by this Settlement Agreement, and that, if any Party commences, causes to be commenced, joins in, or in any manner seeks relief, through or out of any claim, lawsuit, cross-complaint or proceeding in any form arising from, based upon or pertaining in any way to any of the claims released in Paragraph 5 above, then the party asserting such claim shall pay to the other party, in addition to any other damages caused to the other party, all such party’s attorneys fees and costs incurred in defending or otherwise responding to such suit or claim. ~~Pursuant~~ Exhibit ~~thereto, the Parties warrant and represent that there are no known but as yet unasserted claims or suits of any kind or nature against the other relating to the Lawsuit or to this Agreement~~10.40

7.ZEVEX ~~Warranty~~International, ~~of Non-Assignment~~Inc.

~~The~~RESTRICTED ~~Parties~~STOCK ~~represent~~UNIT and warrant that there has been no assignment or transfer of any interest in any claims released in this Settlement Agreement. If any Party has assigned or transferred any such claim in violation of this Agreement, the Parties shall indemnify and hold each other harmless from any liability, claim, demand, damage, cost, expense, and attorneys’ fees actually incurred in relation to the same. AGREEMENT

~~8. Parties Benefited and Obligated By Agreement.~~UNDER

~~The~~2006 ~~releases~~EQUITY ~~and~~INCENTIVE obligations contained in this Agreement shall be binding upon the heirs, successors, assigns, employees, agents, officers, directors, partners, representatives, affiliates, subsidiaries, parent and affiliate PLAN

~~corporations,~~Name ~~and attorneys~~ of ~~each of the Parties, and shall inure to the benefit of each of the foregoing and each Party’s customers.~~Recipient: ______________________

9.Grant ~~Advice of Counsel.~~Date: ______________________

AtNumber ~~all times material hereto, the Parties have had the opportunity to consult with legal counsel~~ of ~~their choice regarding their rights affected by this Agreement, the form and content of this Agreement, and the advisability of executing this Agreement.~~RSUs: ______________________

1014. Award. On ~~Execution~~the grant date set forth above (the “Grant Date”), ZEVEX International, Inc. (the “Company”) has awarded you the number of Restricted Stock Units (“RSUs”) indicated above, subject to the terms and conditions set forth in ~~Counterparts~~the Company’s 2006 Equity Incentive Plan (the “Plan”) and bythis ~~Facsimile~~Award Agreement.

~~This~~15. Vesting. The ~~Agreement~~RSUs ~~may~~shall bebecome ~~executed~~vested in ~~one~~four orequal ~~more~~annual ~~counterparts,~~installments ~~each~~of twenty five percent (25%) of ~~which~~total ~~shall~~number beof ~~deemed~~RSUs anstated ~~original,~~above ~~but~~at ~~all~~the end of ~~which,~~each ~~taken~~of ~~together,~~the ~~shall~~first ~~constitute~~four ~~one~~years ~~and~~from the ~~same~~Grant ~~agreement. Additionally~~Date, ~~although~~so ~~each~~that ~~Party~~100% ~~will~~of ~~provide~~ the ~~other~~RSUs ~~with~~shall anbe ~~original~~vested ~~signature~~on tothe ~~this~~fourth ~~Agreement~~anniversary inof ~~due~~the ~~course~~Grant Date, subject to ~~expedite~~your ~~the~~continued ~~full~~service ~~execution~~as ofan ~~this~~Employee ~~Agreement,~~of ~~each~~the ~~Party~~Company ~~contemplates~~or ~~exchanging~~ a ~~facsimile~~Subsidiary ~~signature~~on toeach ~~this~~vesting ~~Agreement~~date. Upon such vesting, ~~which~~each RSU shall be ~~binding~~convertible toby you into one whole share of the ~~same~~Company’s ~~extent~~Stock, except as anotherwise ~~original~~provided ~~signature~~herein.

1116. Issuance ~~Integration~~of Shares of Stock. As soon as practicable following each vesting date, the Company will issue to you (or in the event of your death or Disability, to your estate or personal representative) certificates representing shares of Stock that you have the right to receive in exchange for all vested RSUs, provided that you have satisfied any tax withholding obligation and otherwise executed any documents that the Company may require in connection with such issuance. When these certificates are issued to you, the shares of Stock represented thereby will be freely tradable in the public market, assuming that the Company continues to meet the requirements of the Securities and Exchange Commission and of the stock exchange on which the shares of Stock are publicly traded. The Company has no obligation to you to continue to qualify for such public trading of its Stock.

~~This~~17. Forfeiture ~~Agreement~~of ~~constitutes~~Unvested ~~the~~RSUs ~~entire~~upon ~~agreement~~Termination of ~~settlement~~Employment; ~~between~~Forfeiture ~~the~~of ~~Parties~~Unvested ~~hereto~~ and ~~supersedes~~Vested ~~all~~RSUs upon Termination for Cause. If you cease to be an Employee for any reason prior ~~and~~to ~~contemporaneous~~any ~~understandings~~vesting date (other than for death or Disability), then all unvested RSUs shall immediately terminate without notice to you and ~~agreements~~shall ofbe forfeited. If you are removed by the ~~Parties~~Company ~~with~~as ~~respect~~an Employee for Cause (as defined below), all outstanding RSUs which are not vested immediately prior to ~~the~~your ~~subject~~removal, ~~matter~~and ~~hereof.~~all outstanding RSUs ~~The~~which ~~Parties~~have ~~warrant~~vested immediately prior to your removal, ~~promise~~shall terminate as of the date of removal for Cause, and ~~represent~~Stock ~~that~~may not be issued in ~~instituting~~respect of such RSUs. For purposes of this Award Agreement, ~~they~~“Cause” ~~are~~shall mean ~~not~~any ~~relying~~of onthe ~~any~~following: ~~oral~~embezzlement; ~~representation,~~fraud; ~~promise~~dishonesty; non-payment of an obligation to the Company; breach of fiduciary duty or ~~statement,~~deliberate ~~and~~disregard ~~that~~of ~~they~~the ~~are~~Company’s ~~not~~rules ~~relying~~that onresults ~~any~~in ~~promise~~loss, ~~statement~~damage, or ~~any~~injury ~~representation~~to ~~contained~~the inCompany; ~~any~~or ~~other~~an ~~written~~unauthorized ~~instrument~~disclosure of the Company’s trade secrets or confidential information.

1218. Acceleration ~~Modification~~of Vesting upon Death or ~~Waiver~~Disability. If your employment with the Company terminates because of your death or Disability, then 100% of the RSUs shall become vested. In the case of the termination of your employment due to your death, the vesting date shall be the date of your death. In the case of the termination of your employment for your Disability, the vesting date shall be the later of (i) the date of termination of your employment or (ii) the determination of your Disability.

a19. Tax Withholding. The ~~provisions~~Company ofmay ~~this~~withhold ~~Agreement~~from ~~can~~the ~~only~~number beof ~~modified~~shares inof Stock otherwise issuable hereunder a ~~writing~~number ~~signed~~of byshares necessary to satisfy the ~~Parties~~minimum ~~which~~statutorily ~~expressly~~required ~~states~~tax ~~that~~withholding ~~modification~~obligations. Such ofshares ~~this~~will ~~Agreement~~be isvalued ~~intended~~at their Fair Market Value when the taxable event occurs.

b20. No Limited ~~provision~~Transferability. The ofRSUs ~~this Agreement~~ may not be ~~waived~~transferred, ~~unless~~pledged, anassigned, ~~instrument~~hypothecated or otherwise disposed of in ~~writing~~any isway, ~~signed~~except by ~~the~~will ~~Parties~~or toby ~~this~~the ~~Agreement. Waiver~~laws of ~~any~~descent ~~one~~and ~~provision~~distribution. The ~~herein~~RSUs shall not be ~~deemed~~subject to beexecution, aattachment ~~waiver~~or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the RSUs contrary to the provisions hereof, and the levy of any ~~other~~execution, ~~provision~~attachment ~~herein~~or similar process upon the RSUs, shall be null and void and without effect. ~~Any~~Once ~~such~~the ~~writing~~RSUs ~~shall~~have ~~expressly~~vested ~~state~~and ~~that~~have abeen ~~waiver~~exchanged for certificates representing shares of ~~this~~Stock, ~~Agreement~~such isshares ~~intended~~of Stock may be freely tradable on the public market, as described in Section 3 above.

1321. Other ~~Choice~~Restrictions. The issuance of ~~Law~~shares of Stock hereunder is subject to compliance by the Company and you with all applicable legal requirements applicable thereto, including tax withholding obligations, and with all applicable regulations of any stock exchange on which the Stock may be listed at the time of issuance. The Company may delay the issuance of shares of Stock hereunder to ensure at the time of issuance there is a registration statement for the shares in effect under the Securities Act of 1933.

~~Notwithstanding~~22. No ~~any~~Employment ~~other~~or ~~provisions~~Continued ofService. Neither ~~this~~the ~~Agreement,~~award ~~this~~to ~~Agreement~~you ~~shall~~of ~~be interpreted and enforced under~~ the ~~laws~~RSUs ofnor the ~~State~~delivery ~~of Utah. Additionally, if any civil action is required~~ to ~~enforce~~you ~~the terms, covenants, or provisions~~ of this Award Agreement, ~~then~~or ~~the~~any ~~Parties~~other ~~agree~~document ~~that~~relating ~~all~~to ~~such legal action shall be instituted in~~ the ~~United~~RSUs ~~States~~will ~~District~~confer ~~Court~~on ~~for~~you the ~~District~~right ofto ~~Utah,~~employment ~~Central~~with ~~Division, and~~ the ~~Parties~~Company ~~expressly~~or ~~consent~~ to ~~the~~continued ~~subject~~service ~~matter~~as ~~jurisdiction,~~an ~~personal jurisdiction and venue of such court for any such legal action~~Employee.

1423. No ~~Severance~~Shareholder Rights. Neither the award to you of the RSUs nor the delivery to you of this Award Agreement or any other document relating to the RSUs will entitle you to any rights of a shareholder of the Company with respect to the shares of Stock subject to this Award Agreement prior to your receipt of the shares of Stock in accordance with this Award Agreement.

In24. No ~~the~~Fractional ~~event~~Shares. The ~~that~~RSUs ~~any~~granted ~~provision~~hereunder ofshall ~~this~~be ~~Agreement,~~issued oronly ~~portion~~in ~~thereof,~~whole isshares ~~held by a court~~ of ~~competent jurisdiction to be unenforceable or invalid~~Stock, ~~the~~and ~~validity~~no orfractional ~~enforceability~~share of ~~the~~Stock ~~remaining provisions~~ shall ~~not~~ be ~~adversely affected~~issued.

1525. Mergers, ~~Costs~~Reorganizations, and ~~Attorneys~~Certain Other Changes. In the event of the Company’s ~~Fees~~liquidation, reorganization, separation, merger or consolidation into, or acquisition of property or stock by another corporation, or sale of substantially all assets to another corporation, your rights with respect to the RSUs awarded hereunder shall be governed by the Committee, as provided in the Plan.

~~The~~26. ~~parties~~Additional ~~agree that they shall bear their own costs and attorneys’ fees in relation to the Lawsuit and this Agreement.~~Provisions

16a. This NoAward ~~Joint~~Agreement ~~Venture~~is subject to the provisions of the Plan, which may be amended by the Committee from time to time as provided therein. A copy of the Plan is available upon request. Capitalized terms not defined in this Award Agreement are used as defined in the Plan. If the Plan and this Award Agreement are inconsistent, the provisions of the Plan will govern.

~~Nothing~~b. The ~~herein~~Plan ~~contained~~and ~~shall~~this beAward ~~construed~~Agreement torepresent ~~place~~the entire agreement of you and the ~~Parties~~Company inwith arespect ~~relationship~~to ofthe ~~partners~~RSUs orgranted ~~joint~~pursuant ~~ventures~~to this Award Agreement and nosupersedes ~~Party~~in ~~shall~~their ~~have~~entirety all prior undertakings and agreements of the ~~power~~Company and you with respect to ~~obligate~~the orsubject ~~bind~~of ~~any~~this ~~other~~Award ~~Party~~Agreement inand ~~any~~may ~~manner~~not ~~whatsoever~~be modified except by means of a written agreement between the Company and you.

17c. Interpretations ~~Titles~~of the Plan and this Award Agreement by the Committee are binding on you and the Company.

~~Titles~~d. Neither ofthe ~~various~~Plan ~~sections~~nor of this ~~Settlement~~Award Agreement ~~are~~shall ~~for~~create ~~the~~or ~~convenience~~be construed to create a trust or separate fund of ~~reference~~any ~~only~~kind or a fiduciary relationship between the Company and any other person. To the extent that any person acquires a right to receive payments form the Company pursuant to an Award Agreement, such right shall ~~not~~be ~~affect~~no greater than the ~~construction~~right of ~~this~~any ~~Agreement~~unsecured creditor of the Company.

18e. Any ~~Prevailing~~notice ~~Party~~hereunder by you to the Company shall be given in writing and such notice shall be deemed duly given only upon receipt thereof by the Secretary of the Company. Any notice hereunder by the Company to you shall be given in writing and such notice shall be deemed duly given only upon receipt thereof at such address as is reflected on the then-current records of the Company.

~~The~~f. This ~~Parties~~Award ~~agree~~Agreement ~~that~~shall ifbe ~~any~~construed ~~action~~and isenforced ~~brought~~in byaccordance ~~any~~with ~~Party~~the tolaws ~~enforce~~of the ~~terms~~State of ~~this Agreement~~Utah, ~~the~~without ~~prevailing~~giving ~~Party~~effect ~~shall be entitled~~ to ~~recover~~the ~~its~~choice ~~costs~~of ~~and~~law ~~reasonable~~principles ~~attorneys’ fees~~thereof.

19IN WITNESS WHEREOF, the Company and you have executed this Award Agreement effective as of the Grant Date. By ~~Notices~~signing below, you acknowledge that you have received, have read, and understand the terms of the Plan and this Award Agreement.

~~Any~~[signature ~~notices~~page ~~or communications to be given under this Agreement shall be sent by first class mail and facsimile as~~ follows:]

~~For~~RECIPIENT ZEVEX: International, Inc.

~~Randall~~_ B.Signature ~~Bateman,~~of ~~Esq.~~Recipient By:_______________________________ Signature of Representative

~~BATEMAN IP LAW GROUP~~ _

8Name ~~East~~of ~~Broadway,~~Recipient—Please ~~Suite~~Print ~~550~~__________________________________ Name of Representative—Please Print

~~Post Office Box 1319~~ _

~~Salt~~Social ~~Lake~~Security ~~City,~~Number UTof ~~84110~~Recipient __________________________________ Title of Representative

(801) 533-0320

(801) 533-0323 Fax

For [***]:

Kit M. Stetina, Esq.

STETINA BRUNDA GARRED & BRUCKER

75 Enterprise, Suite 250

Aliso Viejo, CA 92656

(949) 855-1246

(949) 855-6371 Fax

For PURCHASER:

Robert J. Olivieri, Esq.

George L. Snyder, Esq.

HODGSON RUSS LLP

One M&T Plaza, Suite 2000

Buffalo, NY 14203

(716) 856-4000

(716) 849-0349 Fax

20. Confidentiality

Except as reasonably required by law, the United States Securities and Exchange Commission Rules, subpoena or other legal process, the parties agree to keep confidential and not to disclose the specific terms and/or

the sums paid under this Agreement to third parties and the parties expressly agree not to issue any press releases or communicate with any media outlet concerning the lawsuit or resolution thereof. Notwithstanding the foregoing, the parties may disclose to third parties that the lawsuit has been resolved. The parties may further disclose any information regarding the Agreement to their respective attorneys, financial advisors, appropriate tax authorities and other third parties with a legitimate business need to have such information.

21. Condition Precedent

All terms of this agreement are subject to and expressly conditioned upon the closing of the transactions contemplated by the Purchase Agreement, and all funds set forth above shall be paid to ZEVEX via certified funds or wire transfer within forty-eight (48) hours of such closing.

22. Authorization.

Each of the persons signing this Agreement does hereby warrant that he or she is duly authorized to enter this Agreement on behalf of the corporation or entity for which

he or she has signed, and that such person has taken all steps necessary to authorize the Party’s entry into this Agreement.

[ signature page follows ]

IN WITNESS WHEREOF, duly appointed representatives of the Parties to this Agreement hereby affix their signatures below.

Dated: _______________ ZEVEX, INC. By: Print Name: ___________________________________ Title: ________________________________________

Dated: _______________ [***] By: Print Name: Title:

Dated: _______________ [***] By: Print Name: Title: Dated: _______________ [***] By: Print Name: ___________________________________ Title: ________________________________________

EXHIBIT A

Randall B. Bateman (USB 6482)

Perry S. Clegg (USB 7831)

Bateman IP Law Group

8 East Broadway, Suite 550

Salt Lake City, UT 84111

Tel. (801) 533-0320/Fax. (801) 533-0323

mail@utah-ip.com

Terry W. Welch (USB 5819)

Parr Waddoups Brown Gee & Loveless

185 South State Street, Suite 1300

Salt Lake City, UT 84111

Tel. (801) 532-7840/Fax. (801) 532-0750

tew@pwlaw.com

Attorneys for Plaintiff,

ZEVEX, Inc.

______________________________________________________________________________

IN THE UNITED STATES DISTRICT COURT

CENTRAL DIVISION, DISTRICT OF UTAH

______________________________________________________________________________

ZEVEX, INC., a Delaware corporation, Plaintiff, vs. [***], a California limited liability company, Defendant. ) ) ) ) ) ) ) ) ) ) ) STIPULATED MOTION TO DISMISS CLAIMS WITH PREJUDICE Case No. [***] Judge Paul G. Cassell

________________________________________)_____________________________________

COMES NOW, Plaintiff ZEVEX, INC. and Defendant [***], LLC through their respective counsel, and hereby jointly move for dismissal of all Claims with prejudice.

Each party to bear its own costs.

Stipulated to by:

Plaintiff

ZEVEX, INC.

By: ________________________________ Randall B. Bateman Perry S. Clegg

BATEMAN IP LAW GROUP and PARR WADDOUPS BROWN GEE & LOVELESS

Defendant

[***], LLC

By: ________________________________ Kit M. Stetina STETINA BRUNDA GARRED & BRUCKER

EXHIBIT B

(Patents Within Scope Of License Granted Under Section 2(a))

U.S. Patent No. 5,704,584

U.S. Patent No. 5,810,323

U.S. Patent No. 6,142,979

U.S. Patent No. 6,749,591

European Patent No. 0,900,106 (currently subject of opposition)

EXHIBIT C

Case	Country	Title	Filing Date	Serial No.	Issue Date	Patent No.
[***]- 001 EP	EUROPE	Curvilinear Peristaltic Pump Having Insertable Tubing Assembly	11/08/1999	[***]	03/24/2004	[***]
[***]- 001 EP	ISRAEL	Curvilinear Peristaltic Pump Having Insertable Tubing Assembly	11/08/1999	[***]	12/26/2005	[***]

/s/ David J. McNally

David J. McNally, CEO

(Chief Executive Officer)

Filing Compare · ZEVEX INTERNATIONAL INC